Monaghan v Jones (Trustee), in the matter of Monaghan (Bankrupt)
[2025] FedCFamC2G 501
•9 April 2025
FEDERAL CIRCUIT AND FAMILY COURT OF AUSTRALIA
(DIVISION 2)
Monaghan v Jones (Trustee), in the matter of Monaghan (Bankrupt) [2025] FedCFamC2G 501
File number(s): SYG 998 of 2022 Judgment of: JUDGE MANOUSARIDIS Date of judgment: 9 April 2025 Catchwords: BANKRUTPCY – application pursuant to s 139ZS(1) of the Bankruptcy Act 1966 (Cth) (Bankruptcy Act) to set aside a notice issued pursuant to s 139ZQ(1) of the Bankruptcy Act and applications pursuant to s 120(1) and s 121(1) of the Bankruptcy Act that the transfer of a 40% interest in a property is void as against the trustee in bankruptcy – whether the 40% interest was transferred for a consideration less than its market value – the 40% interest transferred for a consideration that exceeded market value – whether at the time the 40% interest was transferred the transferor was insolvent or was about to become insolvent – whether the transferor’s main purpose for transferring his 40% interest was to prevent the transferred property from becoming divisible among the transferor’s creditors to hinder or delay the process of making property available for division among the transferor's creditors – whether assuming s 121(1) of the Bankruptcy Act applied to the transfer of the 40% interest the transferee established the matters provided for by ss 121(4) – 129ZQ notice set aside and claims under s 120(1) and s 121(1) of the Bankruptcy Act dismissed.
Legislation: Bankruptcy Act 1924 (Cth) s 95
Bankruptcy Act 1966 (Cth) ss 5(2), 52(2), 115(2), 120, 121, 122, 123, 124, 139M, 139L, 139ZS, 139ZQ
Bankruptcy Legislation Amendment Act 1966 (Cth) Sch 1 It 20
Corporations Act 2001 (Cth) s 95A
Evidence Act 1995 (Cth) s 79
Real Property Act 1900 (NSW)
Cases cited: Arcus Shopfitters Pty Ltd v Western Australian Planning Commission [2002] WASC 174
Brewarrana Pty Ltd v Commissioner of Highways (No.2) (1973) 6 SASR 541
Bronzel v State Planning Authority (1979) LGRA 34
Calvery v Green [1984] HCA 81 (1984) 155 CLR 242
Clifford v Turrell (1845) 14 L.J. Ch 397
Commonwealth v Arklay [1952] HCA 76; (1952) 87 CLR 159
Commonwealth v Milledge [1953] HCA 6; (1953) 90 CLR 157
Crompton v Commissioner of Highways (1973) 5 SASR 301
Duffy v The Minister for Planning [2003] WASCA 294
Duffy v The Minister for Planning, [2003] WASCA 294
Gleeson (Trustee), in the matter of Coster v Eggleton [2024] FedCFamC2G 11
Gold Coast Selection Trust Ltd v Humphrey (Inspector of Taxes) [1948] AC 459
Hall v Busst (1960) 104 CLR 206
Halse v Norton (1996) 76 FCR 389
Hussain v CSR Building Products Limited [2016] FCA 392
In the matter of Kit Digital Australia Pty Ltd (in liq) [2014] NSWSC 1547
Lewis v Doran [2005] NSWCA 243
Lewis v Doran [2004] NSWSC 608
Macks as Trustee of the Bankrupt Estate of Lee v Lee (No 2) [2023] FedCFamC2G 815
Maurici v Chief Commissioner of State Revenue [2003] HCA 8
Re Sarina; Ex parte Wollondilly Shire Council [1980] FCA 138; (1980) 32 ALR 596
Rees v Bank of New South Wales [1964] HCA 47; (1964) 111 CLR 210
River Bank Pty Ltd v Commonwealth (1974) 31 LGRA 244
Sandell v Porter (1966) 115 CLR 666
Secretary of State for Foreign Affairs v Charlesworth, Pilling & Co [1901] UKLawRpAC 4; [1901] AC 373
Sellers v One Step Plumbing Concrete Pty Ltd [2002] FCA 478
Spencer v The Commonwealth [1907] HCA 82; (1907) 5 CLR 418
Turner v Forwood [1951] 1 All ER 746
Tyler v Thomas [2006] FCAFC 6
Walker Corporation Pty Ltd v Sydney Harbour Foreshore Authority [2008] HCA 5
Western Australian Planning Commission v Arcus Shopfitters Pty Ltd [2003] WASCA 295
Williams v Toyota Motor Corporation Australia Limited [2024] HCA 38
Division: General Number of paragraphs: 164 Date of hearing: 8,9,10 and 15 December 2023 Place: Sydney Counsel for the Applicant: Mr D Robertson Solicitor for the Applicant: Bolster & Co Counsel for the First Respondent: Mr A Spencer Solicitor for the First Respondent: McLean & Associates Solicitors ORDERS
SYG 998 of 2022 FEDERAL CIRCUIT AND FAMILY COURT OF AUSTRALIA (DIVISION 2)
IN THE MATTER OF MATTHEW KARL MONAGHAN, BANKRUPT
BETWEEN: GREGORY JOHN MONAGHAN
Applicant
AND: MICHAEL GREGORY JONES
First Respondent
OFFICIAL RECEIVER
Second Respondent
ORDER MADE BY:
JUDGE MANOUSARIDIS
DATE OF ORDER:
9 APRIL 2025
THE COURT ORDERS THAT:
1.Pursuant to s 139ZS(1) of the Bankruptcy Act 1966 (Cth) the notice issued on 11 May 2022 given to the applicant pursuant to s 139ZQ(1) of that Act is set aside.
2.The interim application filed by the cross-applicant on 28 September 2022, as amended by order made on 8 November 2023, is dismissed.
3.Subject to order 4, the first respondent/cross-applicant pay the applicant’s/cross-respondent’s costs of the proceeding.
4.The parties have liberty to apply to vary or discharge order 3, such liberty to be exercised within 35 days after the date on which these orders are pronounced.
Note: The form of the order is subject to the entry in the Court’s records.
Note: The Court may vary or set aside a judgment or order to remedy minor typographical or grammatical errors (r 17.05(2)(g) Federal Circuit and Family Court of Australia (Division 2) (General Federal Law) Rules 2021 (Cth)), or to record a variation to the order pursuant to r 17.05 Federal Circuit and Family Court of Australia (Division 2) (General Federal Law) Rules 2021 (Cth).
REASONS FOR JUDGMENT
INTRODUCTION
On 20 August 2015 Mr Matthew Monaghan (Matthew) and his father, Mr Monaghan, signed a registrable instrument of transfer by which Matthew transferred to Mr Monaghan the 40% interest he held as a tenant in common with Mr Monaghan in land situated at 7 Florence Street, Tweed Heads, New South Wales (Property). Matthew and Mr Monaghan became the registered proprietors of the Property on 19 January 2012, as tenants in common in 40:60 shares, pursuant to a contract to purchase the Property they entered into on 5 December 2011.
The transfer recorded that Mr Monaghan provided consideration of one dollar for the transfer of Matthew’s 40% interest. That, however, does not necessarily reflect the consideration Mr Monaghan provided for the transfer.[1] Immediately before they signed the transfer, Matthew and Mr Monaghan were jointly liable under a mortgage they had granted over the Property to the Bank of Queensland (BOQ) to secure a loan BOQ advanced to Matthew and Mr Monaghan (BOQ Loan) to purchase the Property. As at 20 August 2015 the balance owing on the BOQ Loan was $261,385.13; but from 8 September 2015, when the transfer was registered, Mr Monaghan alone assumed the liability to pay that amount. And that is because the BOQ discharged the BOQ Loan, in exchange for which BOQ granted to Mr Monaghan a loan of $261,385.13. Further, as I will detail later, there is evidence that Matthew and Mr Monaghan purchased the Property in 40:60 shares pursuant to an agreement they made; and the terms of this agreement, and the extent to which Matthew performed his obligations under it, are relevant to determining what, if any, consideration Mr Monaghan gave for Matthew’s transfer of his 40% interest in the Property, and the value of that consideration.
[1] The “settled rule of law is, that you may prove a further consideration which is consistent with the consideration stated on the face of the deed. You cannot be allowed to prove a consideration inconsistent with it, but you may prove another which stands with it”, per Lord Lyndhurst LC, Clifford v Turrell (1845) 14 L.J. Ch 397, quoted with approval by Lord Goddard CJ in Turner v Forwood [1951] 1 All ER 746, at page 747.
On 24 July 2019 Matthew became bankrupt on his own petition, and the respondent (Trustee) was appointed as the trustee of his estate on 8 November 2019. On 11 May 2022 the Official Receiver, on the application of the Trustee, issued a notice (139ZQ Notice) purportedly pursuant to s 139ZQ(1) of the Bankruptcy Act 1966 (Cth) (Bankruptcy Act) addressed to Mr Monaghan requiring him to pay the Trustee $499,999.[2] The 139ZQ Notice alleges that Matthew transferred to Mr Monaghan his interest in the Property for one dollar in circumstances where, on 11 August 2015, a registered valuer, Mr Sharpe, had valued the Property at $390,000 solely for stamp duty purposes; and that the current market value on a “highest and best use” basis is estimated to be $1.25 million. On the basis of these allegations, the 139ZQ Notice claims that the transfer by Matthew of his 40% interest is void as against the Trustee pursuant to s 120(1) of the Bankruptcy Act.
[2] CB852
Mr Monaghan responded to the 139ZQ Notice by a letter dated 9 June 2022 his solicitor, Mr Bolster, sent to the Trustee (139ZQ Response), in which Mr Monaghan identified debts he alleged Matthew owed him which Mr Monaghan says he discharged as consideration for Matthew’s transfer of his 40% interest.[3] Mr Monaghan contended that the discharge of debts constituted consideration at least equal to the market value of Matthew’s 40% interest in the Property.
[3] CB860
The Trustee did not accept the submissions made in the 139ZQ Response; and so, on 13 July 2022, Mr Monaghan filed an application in this Court pursuant to s 139ZS(1) of the Bankruptcy Act for an order that the 139ZQ Notice be set aside. Mr Monaghan supported his application with an affidavit Mr Bolster made, in which Mr Bolster said that the grounds on which Mr Monaghan relies for setting aside the 139ZQ Notice are those stated in the 139ZQ Response.
By his Notice of Grounds of Opposition the Trustee disputes most of the matters asserted in the 139ZQ Response, and the Trustee has filed an (amended) interim application in which he claims that, by the operation of s 120(1) and, or alternatively, of s 121(1) of the Bankruptcy Act, Matthew’s transfer of his 40% interest in the Property to Mr Monaghan is void as against the Trustee.
QUESTIONS ARISING
Two principal sets of questions, therefore, arise. The first is whether Mr Monaghan gave consideration for the transfer of Matthew’s 40% interest in the Property that was more than one dollar and, if so, what the consideration was, and what was its value. The determination of that set of questions will largely turn on findings I make about what, if any agreement or agreements, express or implied, Matthew and Mr Monaghan made in relation to their purchase of the Property, and Matthew’s transfer of his 40% interest, as well as other dealings between Matthew and Mr Monaghan. It will also turn on what was the market value of Matthew’s 40% interest. The second principal set of questions are whether Matthew was, or was about to become, insolvent when he transferred his 40% interest; if so, whether Matthew’s main purpose was to prevent his 40% interest from becoming divisible among his creditors or to hinder or delay the process of making his 40% interest available for division among his creditors; and, if so, whether Mr Monaghan could not reasonably have inferred at the time Matthew transferred his 40% interest in the Property that Matthew was, or was about to become, insolvent.
EVIDENCE AND SOME FINDINGS
November 2011 - Mr Monaghan and Matthew agree to purchase the Property
In about November 2011 Mr Monaghan became aware the Property was on the market for sale. Mr Monaghan, who was the sole registered proprietor of the adjoining property,[4] believed the Property would be a suitable property for Matthew to invest in.[5] At that time Mr Monaghan was, and throughout the time relevant to this proceeding has been, the sole director and shareholder of BPM Electrical Services Pty Ltd (BPM),[6] which trades under the name of “Combined Electrical Services”.[7]
[4] CB1022-1023
[5] Affidavit G J Monaghan 01.11.2021, [6]
[6] T50.5
[7] T105.5
According to Mr Monaghan, shortly before 28 November 2011, he and Matthew had the following conversation:[8]
Mr Monaghan: We could buy the place at 7 Florence Street, Tweed Heads together. I’d be prepared to pay the deposit and put in any necessary equity and we could jointly borrow money to fund the balance.
Matthew: That’s a great idea. How would I make a contribution and pay you back?
Mr Monaghan: We could split the ownership 60% to me and 40% to you and you could pay all of the repayments on the loan until you reached a level where you had contributed 40% of the equity that we put in. After that we could just contribute in accordance with our shares.
Matthew:That’s a great idea Dad, I’d really like to do that.
[8] Affidavit G J Monaghan 01.11.2021, [7]
After this conversation, Mr Monaghan offered to purchase, and the vendor accepted to sell, the Property for $335,000. On 28 November 2011 Mr Monaghan paid $33,500 to the vendor’s agent as a deposit towards the purchase price of the Property.[9] Mr Monaghan obtained that money from an account BPM held with a credit union.[10]
[9] Affidavit G J Monaghan 01.11.2021, [9]
[10] Affidavit G J Monaghan 01.11.2021, [10]; Exhibit GJM-1, tab 1 (CB269)
The agreement that is reflected in Mr Monaghan’s account of his conversation with Matthew (Affidavit version) must be considered with the following account given in the 139ZQ Response (139ZQ Response version) [11]:
[Mr Monaghan] had purchased the Property with Matt so as to give Matt an opportunity to acquire some assets and to focus him on moving forward with his life, which was something [Mr Monaghan] was concerned about. At the time of purchasing the Property, [Mr Monaghan] and Matt had agreed that Matt would be responsible for repayment of the BOQ Home Loan up until the time that he and [Mr Monaghan] had contributed an equal amount of equity to the Property, and thereafter their shares in the Property would be adjusted to 50 per cent each. However, as detailed above, this did not occur, with Matt contributing only $1,200.
[11] Affidavit M D Bolster 11.07.2022, [7]; annexure B, at [12]
The Affidavit and 139ZQ Response versions differ. In the 139ZQ Response version Mr Monaghan refers to Matthew and Mr Monaghan having an equal share in the Property, while in the Affidavit version Mr Monaghan refers to a 40:60 share. The two versions, however, are consistent to the extent they both refer to Matthew being responsible for making payments on the loan that would be taken out, up to the “equity”, or a proportion of the “equity”, Mr Monaghan would initially contribute to the purchase.
Mr Monaghan was cross-examined about the discrepancy between the Affidavit and 139ZQ Response versions. Mr Monaghan gave the following evidence of the conversation he and Matthew had (Cross Examination version):[12]
Perhaps, doing the best you can, could you repeat to the court ‑ ‑ ‑?‑‑‑Yes.
‑ ‑ ‑ the words that you said, in the conversation that you had to Matthew?‑‑‑Okay. “Matt, you’re gambling your money. You’re wasting your money. You’ve got nothing. You’re going nowhere. How about we get into a property, and you can – we can buy it together. I will put up all the money, so we can get you in there. All’s you got to do is pay the mortgage till you get up to what I’ve put in. And then it will be 60-40 until that, so I’ve got control, and then once we – you’ve saved the money, and you got the money, it’s there in the assets, it’s fifty-fifty.” And that’s what I tried to do, for the boy, because he’s just blowing his money.
So there’s nothing in this conversation here, as you’ve sworn to it, that says anything about an adjustment to fifty-fifty at any stage, is there? Read it again?‑‑‑Well, there should be. That’s all I can say.
So is this the first time that you’ve noticed that that paragraph in your affidavit is actually incorrect?‑‑‑Yes. Well, yes. It reads a bit jumbled. Yes. Correct.
[12] T61.25-T61.35
In his counsel’s oral submissions, the Trustee submits that the Affidavit version “sets out what is . . . a contemporaneous statement about the intention of the parties at the time they entered into the transaction, or at least prior to. “If we do this, we will split the ownership 60 to me and 40 to you”, and not the legal ownership”.[13] It therefore appears that the Trustee submits that I should accept the Affidavit version as an accurate account of the conversation Matthew and Mr Monaghan had before, and on the basis of which, they purchased the Property. In his counsel’s written submissions, on the other hand, Mr Monaghan refers to both the Affidavit and the Cross-examination versions, and makes no submission about which of these two versions should be accepted. Neither parties’ counsel, however, made submissions about the legal effect of any of the Affidavit, 139ZQ Response, or Cross-examination versions; yet, for reasons that will soon become apparent, it is necessary to consider their legal effect.
[13] 15.12.2023 T16.40
The Affidavit version, on the one hand, and the 139ZQ Response and Cross-examination versions, on the other, manifest different agreements.
(a)The Affidavit version manifests an agreement that Mr Monaghan and Matthew would purchase the Property in shares of 60:40, and that Matthew alone would make payments on the loan Matthew and Mr Monaghan were to obtain to purchase the Property “until [Matthew] reached a level where [Matthew] had contributed 40% of the equity that [Mr Monaghan] put in”, after which Matthew and Mr Monaghan would repay the loan in 40:60 shares. The phrase “40% of the equity” is ambiguous. One possible meaning is 40% of the amounts Mr Monaghan were to contribute. Thus, for example, if Mr Monaghan were to contribute $50,000, Matthew was to make all the loan repayments up to 40% of $50,000, namely, $20,000. Another meaning is that Matthew would make repayments up to 40% of the combined amounts of the loan repayments Matthew would make and the amount Mr Monaghan would contribute. On this interpretation, if, for example, Mr Monaghan were to contribute $50,000, Matthew alone was required to make loan repayments of up to $33,333,[14] after which he and Mr Monaghan would make the loan repayments in 40:60 shares.
(b)The 139ZQ Response version manifests an agreement that Matthew and Mr Monaghan were to hold the Property in equal shares, with Matthew alone making the loan repayments up to the equity Mr Monaghan was to contribute. On this agreement, if Mr Monaghan were to contribute $50,000, Matthew would be solely responsible for making the loan payments up to $50,000. Although the 139ZQ Response version does not expressly state the shares in which Matthew and Mr Monaghan were to acquire the Property, it may be inferred from the fact that the 139ZQ Response version stated that “thereafter their shares in the Property would be adjusted to 50 per cent each”, that Matthew and Mr Monaghan agreed to purchase the Property in 40:60 shares, and they would hold the Property in those shares until Matthew were to pay amounts equal to Mr Monaghan’s contribution, after which Matthew and Mr Monaghan would hold their shares equally.
(c)The Cross-examination version manifests an agreement that Matthew and Mr Monaghan would purchase the property in 40:60 shares; with Mr Monaghan to put in the money that was sufficient “to get [Matthew] there”, that is, to put Matthew in the position where he would assume obligations to make mortgage repayments; and Matthew would make all the mortgage repayments up to the amount that would equal the amounts that Mr Monaghan would put in, after which Matthew and Mr Monaghan would hold the Property in equal shares.
[14] ($33,333 + 50,000) x 40% = $33,333.20
On all three versions, it is contemplated that Mr Monaghan would contribute money in relation to the Property, and that Matthew alone would make loan repayments up to a particular amount. The Affidavit version, on the one hand, and the 139ZQ Response and Cross-examination versions on the other, identify three possible amounts Matthew would be required to pay: (a) 40% of the amount Mr Monaghan was to contribute; (b) 40% of the combined amounts of the loan repayments Matthew was to make and the contribution Mr Monaghan was to make; or (c) amounts equal to the amounts Mr Monaghan was to contribute. Also on all three versions, Matthew and Mr Monaghan agreed they would purchase the Property in 40:60 shares; but the 139ZQ Response and Cross-examination versions provide for the 40:60 shares being adjusted to equal shares, once Matthew were to make the loan repayments they contemplated he alone would make.
It is unlikely that Matthew and Mr Monaghan would have agreed that Matthew would make repayments up to 40% of the amount Mr Monaghan was to contribute, and then continue to make contributions of 40:60, because that would result in Matthew contributing amounts that would be less than his 40% interest, and yet hold a 40% interest in the Property.[15] It is also unlikely that Matthew and Mr Monaghan would have agreed to Matthew contributing an amount which is 40% of the combined amounts Matthew were to pay on the loan and the equity Mr Monaghan were to contribute, because the determination of that amount would require the application of a formula.[16] It is therefore more likely, because it would have been much simpler, that Matthew and Mr Monaghan agreed that Matthew alone would be responsible for making payments on the loan he and Mr Monaghan would take out up to the amount of the equity Mr Monaghan would contribute, after which Matthew and Mr Monaghan would hold their shares equally, and make the loan repayments in equal shares.
[15] Returning to my earlier example, that is, that Mr Monaghan would make a contribution of $50,000, if the agreement was that Matthew need only pay 40% of the amount Mr Monaghan were to contribute, Matthew and Mr Monaghan would commence making the loan repayments in 40:60 shares after Matthew were to pay 40% of $50,000, namely, $20,000, which would represent 28.5%, not 40%, of the companioned amounts Matthew and Mr Monaghan were to contribute.
[16] That is (X + Y) x 40% = X, where X is the total of the amounts Matthew would pay towards the loan, and Y is the equity Mr Monaghan would contribute.
In these circumstances, I find it is more likely that Mr Monaghan and Matthew had a conversation to the effect of the Cross-examination version, as a result of which Matthew and Mr Monaghan made an agreement (Pre Purchase Agreement) under which:
(a)Mr Monaghan and Matthew would purchase the Property in 60:40 shares;
(b)Mr Monagan would contribute equity towards the purchase of the Property, and both he and Matthew would apply for and obtain a loan to assist in the purchase of the Property; and
(c)Matthew alone would make payments under the loan he and Mr Monaghan would obtain up to the amount that would be equal to the equity Mr Monaghan was to contribute, after which:
(i)Matthew and Mr Monaghan would contribute equally to the repayment of the loan and interest; and
(ii)Matthew and Mr Monaghan would hold the Property in equal shares.
5 December 2011 - Mr Monaghan and purchase the Property
On 5 December 2011 Mr Monaghan and Matthew signed a contract under which they agreed to purchase the Property for $335,000, and pursuant to which a deposit of $33,500 was paid. The contract provided that Mr Monaghan would acquire 60% and Matthew 40% of the Property, and that the completion date would be on the 45th day after the date of the contract.
19 January 2012 – Drawdown of BOQ Loan and Mr Monaghan’s additional payments
On 6 December 2011 the BOQ offered to provide to Mr Monaghan and Matthew a loan of $268,000 payable over 360 months “to buy an existing home”, such loan to be secured by a mortgage over the Property. Mr Monaghan and Matthew accepted the offer on 5 January 2012.[17]
[17] CB1533
Mr Monaghan and Matthew completed the purchase of the Property on 19 January 2012. Mr Monaghan says that he and Matthew obtained a loan of $268,000 from the BOQ, and that Mr Monaghan himself paid an additional two amounts, one being $50,061.04, and the other being $912.40. Mr Monaghan further says that the loan the BOQ made (this being the “BOQ Loan” I identified at the beginning of these reasons), and the amounts Mr Monaghan paid, are recorded in the loan account the BOQ created in relation to the loan it made (BOQ Loan Account).[18] The bank statements that are in evidence do not fully reflect Mr Monaghan’s evidence. The first entry records a debit of $289,969.19 which, it may be open to infer, is the amount of the BOQ Loan, although nothing turns on determining the precise amount of the BOQ Loan.[19]
[18] Affidavit G J Monaghan 01.11.2021, [12]
[19] Affidavit G J Monaghan 01.11.2021, [11]; Exhibit GJM-1, tab 3 (CB1615)
Payments made to the BOQ Loan Account
In his first affidavit Mr Monaghan says that from 19 January 2012 to 8 September 2015 Matthew deposited into and withdrew from the BOQ Loan Account amounts totalling $3,500 and $2,300 respectively; and that Mr Monaghan says he paid amounts totalling $38,977.44,[20] together with amounts totalling $6,500 for council and water rates for the Property.[21] This evidence is incorrect. The true position is usefully summarised in a document the Trustee prepared headed “Mortgage Summary”, which is “Annexure B” to the Trustee’s written submissions, and which I accept accurately reflects the evidence it purports to summarise. The Mortgage Summary contains the following information:
(a)The dates on which the transactions the Mortgage Summary identifies occurred. The dates range from 18 February 2012 to 19 August 2015.
(b)In the column headed “Monthly Payment” there is recorded the monthly amounts of interest debited to the BOQ Loan Account.[22] These total $50,431.85.
(c)In the column headed “Matthew withdrawal” there is recorded amounts totalling $4,977 Matthew withdrew from the BOQ Loan Account.
(d)In the column headed “Payments out” there is listed payments totalling $62,866.19 that were credited to the BOQ Loan Account.
(e)In the column headed “Matthew payments” there is listed payments totalling $13,000 Matthew made into the BOQ Loan Account.
(f)In the column headed “Matthew to Greg” there is listed payments totalling $12,650 Matthew made to Mr Monaghan which Mr Monaghan treated as payments on account of the BOQ Loan.
[20] Affidavit G J Monaghan 01.11.2021, [17]
[21] Affidavit G J Monaghan 01.11.2021, [18]
[22] The bank statements for the BOQ Loan Account are at CB1613-CB1628.
Matthew made no payment towards the BOQ Loan after 23 July 2014.
Other payments
When giving evidence under cross-examination, Mr Monaghan produced a document he said he created after his solicitor, Mr Bolster, had sent him a notice to produce the Trustee’s solicitor served on Mr Bolster. [23] The document lists various payments Mr Monaghan says he made to or on behalf of Matthew, and payments Matthew made to Mr Monaghan.[24] Page 2 of the document is headed “loans”, and it records amounts Mr Monaghan says were loans he made to Matthew. These total $50,459.53; and they include $14,078, which Mr Monaghan says he loaned to Matthew in 2010 to enable him to buy a car;[25] and $19,014.53, which Mr Monaghan paid to St George Bank to repay a loan Matthew had taken to buy a car.[26]
[23] Exhibit H
[24] T46.25
[25] Affidavit G J Monaghan 01.11.2021, [21]
[26] Affidavit G J Monaghan 01.11.2021, [20]
Did Mr Monaghan acquire a greater than 60% equitable interest in the Property?
Mr Monaghan, in his counsel’s written submissions, submits that, by 20 August 2015, when he executed the instrument of transfer, Matthew did not have any equitable interest in the Property, and that, in effect, Matthew held his 40% interest as trustee for Mr Monaghan. Mr Monaghan relies on the following submissions:
(a)A tenant in common’s equitable interest in a property is proportionate to his or her contribution of equity in the property.[27] Mr Monaghan relies on the following passage from the judgment of Deane J in Calverley v Green:[28]
[W]here a person pays the purchase price of property and causes it to be transferred to another or to another and himself jointly, the property is presumed to be held by the transferee or transferees upon trust for the person who provided the purchase money. The second can properly be seen as complementary of the first. It is: where two or more persons advance the purchase price of property in different shares, it is presumed that the person or persons to whom the legal title is transferred holds or hold the property upon resulting trust in favour of those who provided the purchase price in the shares in which they provided it.
(b)Where one tenant in common makes payment of mortgage instalments for which both co-owners are liable to pay, the co-owner payer is entitled to be credited for that amount; and where a co-owner pays a greater proportion of the mortgage instalments than reflects his or her share in the mortgaged property, he or she is generally able to recover the overpayment.[29]
(c)Matthew did not contribute any equity towards the purchase of the property; and he only paid $20,653 on account of the BOQ Loan.[30]
(d)Mr Monaghan’s payments exceeded Matthew’s payments and, for that reason, Matthew did not acquire any equity.[31]
[27] Applicant’s outline of submissions, [65(b)]
[28] Calvery v Green [1984] HCA 81 (1984) 155 CLR 242, at page 266
[29] Applicant’s outline of submissions, [65(c)]
[30] Applicant’s outline of submissions, [67(b)]
[31] Applicant’s outline of submissions, [67(c)]
These submissions do not support a finding that Matthew held no equitable interest in the Property. First, the submissions do not distinguish between money that tenants in common contribute towards the purchase price of a property, which may include money they borrowed for that purpose, and money the tenants in common pay to the mortgagee who lent money to the tenants in common to fund the purchase. As Brennan and Mason JJ said in Calverley:[32]
It is understandable but erroneous to regard the payment of mortgage instalments as payment of the purchase price of a home. The purchase price is what is paid in order to acquire the property; the mortgage instalments are paid to the lender from whom the money to pay some or all of the purchase price is borrowed.
[32] Calvery v Green [1984] HCA 81; (1984) 155 CLR 242, at page 257
A tenant in common, however, who has contributed towards the payment of a mortgage in a share greater than he or she holds in the mortgaged property, acquires a right of contribution against the other co-owner to recover the share, which right may be secured by a charge on the property.[33] The proprietary interest the right of contribution confers on such tenant in common, however, is limited to providing security for the amount of contribution to which the tenant in common may be entitled.
[33] Calvery v Green [1984] HCA 81; (1984) 155 CLR 242, at page 263: “If it is right to regard the payment of the mortgage instalments as having been made by the defendant out of his own funds and on his own account - that is, if he made those payments not intending the plaintiff ultimately to have the benefit of those payments – the defendant may be entitled to contribution from the plaintiff for her share of the payments and to an equitable charge to secure the making of her contribution.” (Brennan and Mason JJ).
Second, Mr Monaghan’s submissions ignore the agreement pursuant to which Matthew and Mr Monaghan purchased the Property. I have found that Matthew and Mr Monaghan made an agreement to the effect of the Pre Purchase Agreement, under which Matthew was to acquire a 40% interest in the Property; Matthew would be solely responsible for payments of the loan he and Mr Monaghan were to take out up to the amount of the equity Mr Monaghan were to contribute; and, on his making payments up to that amount, Matthew and Mr Monaghan would hold equal shares in the Property, and would contribute equally to the payment of interest and principal on the loan. Matthew and Mr Monaghan did not expressly agree on what would occur if Matthew were to breach his part of the agreement. In particular, Matthew and Mr Monaghan did not agree that Matthew were to cease holding his 40% interest in the Property.
It is the case that, if considered alone, Mr Monaghan’s paying the 10% deposit of $33,500 would, without more, have resulted in Matthew’s holding 5% of his interest in the Property on resulting trust for Mr Monaghan.[34] But this would have to be considered with the presumption of advancement that would apply to the father child relationship between Mr Monaghan and Matthew, which in turn will have to be considered with the agreement pursuant to which Matthew and Mr Monaghan purchased the Property. I have already made findings about the agreement Matthew and Mr Monaghan made in that regard; and it is that agreement – the Pre Purchase Agreement - that is determinative of the equitable interests each of Matthew and Mr Monaghan held in the Property.
[34] I reviewed in some detail the principles of resulting trusts in Gleeson (Trustee), in the matter of Coster v Eggleton [2024] FedCFamC2G 11, at [74]-[93].
I am satisfied that the Pre Purchase Agreement contains no term that is directed to altering the 40:60 legal interest Matthew and Mr Monaghan agreed they would acquire on the purchase of the Property, other than to provide that Matthew would acquire a 50% interest in the Property on his making payments under the loan he and Mr Monaghan were to obtain in an amount up to the equity Mr Monaghan was to contribute. The Pre Purchase Agreement otherwise did no more than specify the obligations Matthew and Mr Monaghan would have to make payments on the loan they would take out. As will appear later, these obligations are relevant to assessing the consideration Mr Monaghan gave for Matthew’s transfer of his 40% interest in the Property.
Transfer of Matthew’s 40% interest in the Property
Mr Monaghan has deposed to, and he has given evidence under cross-examination, of a conversation or conversations he says he had with Matthew about the terms on which Matthew would transfer his 40% interest in the Property. The Trustee submits I should not accept Mr Monaghan’s evidence. Before I set out Mr Monaghan’s evidence, it would be convenient to refer to the facts the contemporaneous documentary evidence reveal that relate to Matthew’s transfer of his 40% interest in the Property.
Facts as revealed by the documentary evidence
On 19 February 2015 Mr Monaghan sent the following email to Mr Bolster:[35]
Hi Mark. I think Matthew contacted you a while back about 7 Florence street and was suppose [sic] to see you but didn’t turn up.
We need to get his name off the ownership at the moment he owns 40 perecent [sic] and I own 60 percent although I have been paying the mortgage as he failed to keep up with the payments
Bill Cox has told Matt to get anything he has out of his name.
I’m Just sending this email so I can find out what I need to bring when I see you
I haven’t made an appointment yet but will make available anytime you have the time
[35] Exhibit C
In evidence given under cross-examination, Mr Monaghan said that his reference to “Bill Cox” was an error, and that he intended to refer to “Bill Potts”, who is a lawyer who was acting for Matthew in a criminal matter.[36] Mr Monaghan was asked whether Matthew explained to Mr Monaghan why Mr Potts told Matthew he needed to get everything out of his name:[37]
Did Matthew explain to you or Bill Cox explain to you why that needed to be done?‑‑‑Something to do with going to a civil case or – I don’t know. Damages or something like that. I don’t know.
Was it something to do with the prospect that Matt might be sued by somebody and somebody might get a judgment against him?‑‑‑Well, if that happens in civil cases – I’m not too sure. I would imagine it might have been a sued thing. I’m not sure the reason.
Right. So you just sent something along to Mr Bolster?‑‑‑I had already made up my mind well before this time ‑ ‑ ‑
All right?‑‑‑ ‑ ‑ ‑ about – about getting Matt off that document – off that loan. He had owed us a considerable amount of money. I’ve tried to teach him the principle of paying your money back and not keep taking money out – driving me insane. . . .
[36] T121.45; CB929
[37] T126.10-T126.25
When he received Mr Monaghan’s email Mr Bolster sent an email to whom I infer were two of his employees, Ms Burness and Mr Abberfield, stating that “[w]e need to open a file and start this matter”.[38] On 23 February 2015 Mr Abberfield sent an email to Mr Bolster stating that a file was opened, attaching a title search, and asking what Mr Bolster wanted Mr Abberfield to do.[39]
[38] Exhibit C
[39] CB831
There is in evidence a file note which was produced by Mr Bolster in answer to a notice to produce which records the following:[40]
Greg put the deposit in
-Mortgage to Bank of Qld securing $260,000
-Greg paid the deposit + [?] Matt was to pay the payments on the loan.
[40] CB830
On 4 March 2015 Mr McAlpine sent an email to Mr John Sharpe, a certified valuer, noting “[w]e require a valuation of the above property for stamp duty purposes”, the “above property” being the Property. Mr McAlpine said he attached a copy of the title search and plan.[41] On 5 March 2015 Mr McAlpine sent an email to Mr Monaghan attaching a letter dated 4 March 2015 from Mr Bolster in which he thanked Mr Monaghan for “your instructions in this matter”, the matter being “Transfer of 40% share”, and attaching a costs disclosure and costs agreement.[42] The letter noted that the BOQ will charge a production fee, but that the fee BOQ will charge will not be known until “we have authority to contact the bank on your behalf regarding the Transfer”. On 13 March 2015 Mr Sharpe sent an email to Ms McAlpine attaching his valuation report.[43]
[41] CB814
[42] CB823
[43] CB812
According to a McAlpine’s file note, on 8 April 2015 Mr Monaghan informed Mr McAlpine that “he has seen BOQ today to organise for his son to [be] discharged of the mortgage – he said that Sheridan at the South Tweed Branch is handling the matter”. Mr McAlpine told Mr Monaghan that he would forward him a copy of the valuation.[44] According to another file note Mr McAlpine prepared, on 9 April 2015 he called:[45]
Sheridan [Lynch] at Bank of Queensland Tweed Heads South — he said that Greg has signed an application form though she still requires some further information — They are only at the start of the process — She is happy to incorporate lodgement fees into their costs and will charge the client direct if we can hand them the Transfer. She will be in contact with us once the application process has been approved.
[44] CB810
[45] CB809
Following this conversation, Mr McAlpine sent an email to Ms Lynch requesting that she “keep us updated on the matter in order for us to have the Transfer drafted, signed and stamped in readiness for lodgement at LPI”.[46]
[46] CB808
On 9 April 2015 Mr Bolster sent the following letter by email to Mr Monaghan:[47]
We refer to the above matter and enclose copy of the Valuation obtained from John R Sharpe, valuer for your records.
We confirm the valuation of the property is $490,000.00. As you have advised there is no consideration payable, stamp duty is still required to be paid on the 40% share being transferred. We have calculated stamp duty to be $5,360.00 and will require this amount to be paid along with our account attached in order for the Transfer to be lodged with Department of Lands and Information Sydney.
[47] CB806
On the same day, Mr Bolster sent to Mr Monaghan a tax invoice in which he described the services he provided in relation to the “Transfer of 40% share” as follows:[48]
To our inclusive costs in taking instructions, arranging valuation, preparing transfer, stamping transfer, acting in relation to your mortgage, complying with Bank of Queensland's requirements, sending transfer to Bank of Queensland for lodgment at LPI, reporting to you:
[48] CB804
On 16 April 2015 Mr Monaghan sent an email to Mr McAlpine in which he said he was “reluctant to accept the current valuation”, and that he attached “some working out I have done which I think reflects the true value of the property given that it was to be sold today”. Mr Monaghan said, however, that “he would be happy to accept $490,000”, but he did not think there is a buyer out there that would pay that much.[49] By letter dated 29 April 2015 Mr Bolster informed Mr Monaghan that, although he understood Mr Monaghan’s position about the valuation, “the Office of State Revenue will not”.[50]
[49] CB796
[50] CB794
By email sent on 28 April 2015 Ms Lynch informed Mr Monaghan that BOQ had received (BOQ’s) valuation report, and she had “just sent application through to credit”. Ms Lynch said that “[t]hey are fairly busy at the moment, so may not have something back from them for a couple of days”.[51] Ms Lynch, in a further email she sent to Mr Monaghan on 28 April 2015, said that BOQ had valued the Property at $335,000, “but that was based on land value only given [the] current state of the building”.[52] Mr Monaghan sent an email to Ms McAlpine on 1 May 2015 stating that BOQ had valued the Property at “$335,000 as to $480.000 [sic]”, and asked whether the bank’s valuation be used for the purpose of calculating tax.[53]
[51] CB789
[52] CB788
[53] CB788
There is in evidence a handwritten note which, to the extent it is legible, is as follows:[54]
[54] CB785
On 1 and 15 July 2015 Ms McAlpine requested Ms Lynch for an update on BOQ’s finance approval, and to provide a copy of BOQ’s valuation.[55] BOQ provided a copy of the valuation (BOQ valuation) to Mr McAlpine, who provided it to Mr Sharpe. It would be appropriate at this point to reproduce the following statements contained in the BOQ valuation concerning the condition of the Property (emphasis added):[56]
A regular shaped 683m2 inside allotment that is at road level and which has an older style lowset part demolished dwelling still on the property. The dwelling in the condition it was inspected cannot be occupied/resided in, without the completion of substantial works as well as incurring considerable sums to enable the dwelling to be habitable and/or suitable for rent.
The dwelling still requires the following to be habitable construction of internal walls, electrical works, floor coverings and plumbing, windows/doors, kitchen, bathroom, painting.
The current market value of the property is adversely impacted due to the part demolished house still located onsite. The potential impact on value is likely to include the costs to either demolish the dwelling or to mechanically shift the remaining shell or to completely renovate the existing shell. As we are not experts in the costs associated with any of the above listed . . .
. . . .
Please note the external cladding and corrugated roof appears to be of asbestos cement product and may require significant cost to safely remove.
[55] CB782, CB783
[56] CB432
On 11 August 2015, Mr Sharpe provided a revised valuation of $390,000 (Sharpe Valuation).[57] On 20 August 2015 Mr Monaghan paid stamp duty of $3,950 based on a “dutiable amount” of $156,000,[58] being 40% of Mr Sharpe’s valuation of $390,000.
[57] CB750-755
[58] CB745
On 20 August 2015 Mr Monaghan and Matthew signed an instrument of transfer which records that the transferor (Matthew) “acknowledges receipt of the consideration of $1.00 and as regards the abovementioned land transfers to the transferee an estate in fee simple”. Mr Monaghan is identified as the transferee.[59] It appears that Mr Bolster’s office prepared an online notice of sale (eNOS) in relation to the transfer, which included the following “Transaction Details” (Notice of Sale):[60]
Transaction Details
Category: SALE Purchase Price: $156000
Contract Date: 20/8/2015 Settlement Date: 20/8/2015
Other Items Included: N Other Land Included: N
Acquisition Date: Acquisition Type: SALE
Transfer of Shares: 40/100
[59] CB737
[60] CB738. An eNOS is an online form accessible through the Land and Property Information Online shop which a person completes in relation to a number of class of dealings, including transfers, which are registrable pursuant to the Real Property Act 1900 (NSW).
Under cover of a letter dated 20 August 2015 Mr Bolster sent to BOQ the stamped transfer and the eNOS, and requested BOQ advise when the documents have been registered with the Land Titles Office.[61] On 8 September 2015 BOQ credited the BOQ Loan Account with the sum of $261,385.13, which was the balance outstanding on that account as at that date; and debited the same amount to an account Mr Monaghan held in his own name.[62]
[61] CB736
[62] CB1627, CB1630
By letter dated 1 October 2015 Mr Bolster confirmed to Mr Monaghan that the Property “has now been transferred to you”, and provided him with a copy of the title search for his records.[63]
[63] CB728
Mr Monaghan’s affidavit evidence
In his first affidavit Mr Monaghan says that, in about mid-2015, he received a call from Mr Greg Tuckhall, the manager at BOQ who was dealing with the BOQ Loan Account. Mr Tuckhall told Mr Monaghan that Matthew “has come to me wanting to access more money from the loan. I thought I’d better let you know”.[64] Mr Monaghan says that, “[i]n light of this”, he had the following conversation with Matthew:
Mr Monaghan: The situation with 7 Florence Street is hopeless Matt, you haven’t paid anything for years and it can’t go on the way it is. Also, you owe me a substantial amount of money for the two cars and there doesn’t seem to be any sign that you're going to pay that money back.
Matthew:Yeah I know I’m sorry Dad, things just haven’t turned out for me as I had hoped they would and I know that I haven’t paid what I was supposed to pay.
Mr Monaghan: Look, let’s not worry about that. I think it’s important that the whole thing is wound up and I get the property into my name because I’ve put in all the money and I’m paying everything. What I’m prepared to do is refinance the property so that we can pay out the existing Bank of Queensland loan and to help you out I’ll just forgive the two loans for the cars so that you don’t have to worry about those any further.
[64] Affidavit G J Monaghan 01.11.2022, [22]
The “two loans for the cars” are the car loans to which I have already referred.
Mr Monaghan then gives the following evidence:[65]
Following this conversation, I made arrangements with BOQ to refinance the BOQ Joint Home Loan, by taking out a loan solely in my name which would be used to repay the BOQ Joint Home Loan. BOQ opened an account solely in my name, with account number 22374608 (BOQ Refinance Loan Account). Copies of the bank statements for the BOQ Refinance Loan Account, and other documents relevant to the BOQ Refinance Loan, are at Tab 7 of the Exhibit.
[65] Affidavit G J Monaghan 01.11.2022, [24]
Mr Monaghan’s evidence given under cross-examination
In evidence given under cross-examination Mr Monaghan said as follows:[66]
[66] T131.10-T131.35
. . . Well, I had many a conversation with Matt about repaying the loan and the mortgage – the – the original agreement with him paying the mortgage up until we come fifty-fifty. I know it doesn’t say it all on there for – word for word, but basically I’m at the boy, “You owe me money. You’re not doing anything about it. You’re – you’re not 100 per cent committed to – to repaying your – your money back,” and – well, probably says two cars when I only just did it, but was more referring to all the other money on the way – lead-up to – the last one was the car.
So ‑ ‑ ‑?‑‑‑And that conversation we had many a time.
I’m just asking you about this conversation, Mr Monaghan, the one you’ve given evidence of?‑‑‑Yes, but – okay.
I’m asking you about this one?‑‑‑Yes.
And I’m asking you when that occurred?‑‑‑That – well, January, I reckon. Just after Christmas. Just after his birthday in ‑ ‑ ‑
So ‑ ‑ ‑?‑‑‑5 January.
So before, in fact, you had lent him the money to pay out St George?‑‑‑Well, there you go. Must have been. Then the two cars – the two cars. All these dates, seriously. I don’t know.
You don’t know?‑‑‑I don’t know.
Okay?‑‑‑He ‑ ‑ ‑
What I want to put to ‑ ‑ ‑?‑‑‑That’s all I can say, seriously.
Findings
Mr Monaghan, in his counsel’s written submissions, submits that, although Mr Monaghan has given different versions of the precise conversations he says he had with Matthew, I should find that Mr Monaghan proposed to forgive “all loans” Mr Monaghan made to Matthew, these totalling $50,477 or, in the alternative, $33,110.42 (this being the sum of the payments for the two cars). Mr Monaghan’s counsel submits there is no reason to suppose Mr Monaghan would simply advance gifts of tens of thousands of dollars in circumstances where Mr Monaghan was trying to get Matthew to be more financially responsible; and, moreover, it is credible that Mr Monaghan would propose to forgive all of the loans he had made to Matthew as part of Matthew’s transfer of his 40% interest in the Property, because that would provide a clean break with providing financial support to Matthew.[67]
[67] Applicant’s outline of submissions, [85]
I find it is likely that Mr Monaghan had a number of conversations with Matthew from around July 2014 (when Matthew ceased to make payments towards the BOQ Loan) until 19 February 2015 (when Mr Monaghan sent his email to Mr Bolster) in which Mr Monaghan complained to Matthew about Matthew’s not paying the amounts he had agreed to pay under what I have identified as the Pre Purchase Agreement; and Mr Monaghan told Matthew that he owed Mr Monaghan money, and that Matthew was not committed to repaying the money back. I so find because Mr Monaghan and Matthew entered into the Pre Purchase Agreement but Matthew, after July 2014, ceased to make any payments he had agreed to make under that agreement. I also rely on the email Mr Monaghan sent to Mr Bolster on 19 February 2015 where Mr Monaghan said that Matthew “failed to keep up with the payments”, namely the mortgage payments in relation to the BOQ Loan.
I do not accept, however, Mr Monaghan’s evidence to the extent he says he informed Matthew that he would “forgive the two loans for the cars so that” Matthew would not “have to worry about those any further”; or that Mr Monaghan would forgive Matthew’s other debts.
(a)In the email he sent to Mr Bolster on 19 February 2015, Mr Monaghan referred to Matthew having failed to keep up with the mortgage payments; but he does not refer to any other payments Matthew failed to keep up with, or any other debts he owed Mr Monaghan or which he had failed to repay. If, in truth, Mr Monaghan had told Matthew that he would forgive Matthew the two car loans, or any other loans, it is reasonable to expect that Mr Monaghan would have mentioned that fact in his email to Mr Bolster and, moreover, he would have sought legal assistance to achieve that result by identifying what those debts were and requesting advice on how he could forgive Matthew such loans.
(b)Mr Monaghan has given no evidence of any conversation or other communications he had with Matthew at the time he paid the $14,078 in 2010, the $19,014.53 on 18 February 2015, or any of the other amounts Mr Monaghan says he loaned Matthew. In the absence of any such evidence, it is not possible to determine whether Mr Monaghan made those payments as loans or as gifts. In those circumstances, it is difficult to give credit to Mr Monaghan’s evidence that he had a conversation with Matthew in which he told Matthew he had forgiven loans.
That I have not accepted Mr Monaghan’s evidence does not mean there is no evidence of an agreement between Matthew and Mr Monaghan in relation to Matthew’s transfer of his 40% interest in the Property. The documentary evidence shows that, by 19 February 2015, Mr Monaghan had decided he needed to “get” Matthew’s “name off the ownership”; and in his email of 19 February 2015 to Mr Bolster, Mr Monaghan identified at least one reason, namely, that Mr Monaghan (not Matthew) had been paying the mortgage; Matthew failed to keep up the payment; and “[w]e need to get his name off the ownership”. Mr Monaghan instructed Mr Bolster to achieve that result; and the result was achieved by 8 September 2015 by:
(a)Matthew (and Mr Monaghan) executing a transfer to Mr Monaghan of Matthew 40% interest in the Property;
(b)the BOQ advancing to Mr Monaghan $261,385.13 in discharge of the obligation he and Matthew had to the Bank under the BOQ Loan;
(c)the BOQ registering the transfer with the Land Titles Office with the effect that Mr Monaghan became the sole registered proprietor of the Property; and
(d)the BOQ granting to Mr Monaghan a loan of $261,385.13.
It is open to infer on the basis of these actions, and I find, that they occurred pursuant to an agreement (Transfer Agreement) under which Matthew and Mr Monaghan agreed that Matthew would transfer his 40% interest in the Property in return for his having nothing further to do with the Property and the BOQ Loan, which necessarily meant he would have no further obligations under the Pre Purchase Agreement and the BOQ Loan he and Mr Monaghan had jointly obtained. More specifically, I find that Matthew and Mr Monaghan agreed that Matthew would transfer to Mr Monaghan his 40% interest in the Property in return for:
(a)Mr Monaghan releasing Matthew from the obligations he owed Mr Monaghan under the Pre Purchase Agreement; and
(b)Mr Monaghan arranging BOQ to discharge Matthew from the liabilities he (together with Mr Monaghan) had under the BOQ Loan in exchange for the BOQ providing a loan to Mr Monaghan in an amount sufficient to discharge the amount of the BOQ Loan, as it would stand at the time of registration of the transfer of Matthew’s 40% interest.
TRUSTEE’S CASE BASED ON S 120 OF THE BANKRUPTCY ACT
The Trustee challenges Matthew’s transfer of his 40% interest to Mr Monaghan in two ways. One is by relying on at least the essential facts alleged in the 139ZQ Notice, and the second is by relying on the cross claim. The Trustee, correctly, does not submit that Mr Monaghan has not adduced “sufficient evidence to call the validity of the [139ZQ Notice] into question”;[68] and for that reason, the Trustee has (correctly) assumed the onus of proving the essential facts alleged in the 139ZQ Notice, and that those alleged facts constitute the essential elements of the application of s 120(1) of the Bankruptcy Act to Matthew’s transfer of his 40% interest in the Property.[69]
[68] Halse v Norton (1996) 76 FCR 389, at page 392: “[S]ubdiv J has not changed the position with regard to the burden of proof other than requiring an applicant to put before the Court sufficient evidence to call the validity of the notice into question.
[69] See Halse v Norton (1996) 76 FCR 389, at page 398: “[W]here an application under s139ZS involves a dispute between the trustee and the person served with the notice as to the application of Div 3 to a transaction, the onus will be on the trustee to satisfy the Court that the provisions of Div 3 so apply, subject to express contrary provisions such as those set out in ss 120(2) and (5), 122(3), 123(2) and 124(2) of the Act which place the onus of proof of certain matters on the person seeking to uphold the transaction.”
Section 120 of the Bankruptcy Act
Subsection 120(1) of the Bankruptcy Act provides as follows:
A transfer of property by a person who later becomes a bankrupt (the transferor) to another person (the transferee) is void against the trustee in the transferor’s bankruptcy if:
(a) the transfer took place in the period beginning 5 years before the commencement of the bankruptcy and ending on the date of the bankruptcy; and
(b) the transferee gave no consideration for the transfer or gave consideration of less value than the market value of the property.
Under s 115(2) of the Bankruptcy Act the bankruptcy of a person who becomes a bankrupt as a result of the acceptance of the person’s debtor’s petition is taken to have relation back to, and to have commenced at, one of the times specified in the table in s 115(2). Matthew presented his petition on 24 July 2019 and, for that reason, the relevant time for identifying when Matthew became bankrupt is the time specified in item 4 of the table in s 115(2). That means that Matthew’s bankruptcy commenced on 24 July 2019, the day on which he presented his petition.
In Macks as Trustee of the Bankrupt Estate of Lee v Lee (No 2) I identified some of the principles that apply to s 120(1) of the Bankruptcy Act, and I rely on those principles without reproducing them in these reasons.[70]
[70] Macks as Trustee of the Bankrupt Estate of Lee v Lee (No 2) [2023] FedCFamC2G 815, at [105]-[140]
There is no question that the transfer of Matthew’s 40% interest took place in the period beginning 5 years before 24 July 2019 when Matthew became bankrupt. The questions that arise are whether Mr Monaghan gave consideration for the transfer and, if so, whether the consideration had a value that was less than the market value of Matthew’s 40% interest.
What consideration did Mr Monaghan give?
The Trustee’s case
In the 139ZQ Notice the Trustee alleges Mr Monaghan gave consideration of one dollar. The Trustee repeats this allegation in his amended interim application, but alleges, in the alternative, a consideration consisting of “forgiveness of Mr Monaghan’s entitlement to claim contribution from [Matthew] for the amount then due on the mortgage debt”.[71] In his counsel’s written submissions, the Trustee says that he “pleads the consideration in two alternative paragraphs”, one being a consideration of one dollar, and the alternative being a consideration of one dollar and “the forgiveness of Mr Monaghan’s entitlement to contribution”.
[71] Amended Interim Application, [8]
Although the Trustee points to evidence in support of his contention that Matthew gave consideration of one dollar,[72] the Trustee does not articulate the basis on which the Trustee contends Mr Monaghan released Matthew of a liability of $130,692.57. Moreover, in making his alternative submission that Monaghan released Matthew of a liability of $130,692.57, the Trustee ignores the terms of the agreement pursuant to which Matthew and Mr Monaghan purchased the Property (these being the terms that I have described as the Pre Purchase Agreement), and the extent to which Matthew performed and failed to perform his obligations under that agreement.
[72] First respondent’s submissions, [51]
Mr Monaghan’s case
In the 139ZQ Response Mr Monaghan identifies two ways in which he says he paid consideration for Matthew’s 40% interest in the Property that was greater than the market value. The first is the following paragraphs of the 139ZQ Response:
5. Greg paid a 10 per cent deposit on the date of exchange, in the sum of $33,500.
6.In order to fund the balance of the purchase price for the Property, Greg and Matt obtained a home loan from the Bank of Queensland (with account no. 21746255) (BOQ Home Loan).
7.On 19 January 2012, the following amounts were advanced to pay the balance of the purchase price owing:
a. BOQ advanced the sum of $68,000 [sic];
b. Greg paid an amount of $50,061.04; and
c. Greg paid an additional amount of $912.40.
These payments are recorded in the bank statements for the BOQ Home Loan.
. . . .
9.In the period 27 January 2012 to 8 September 2015, Greg made net repayments in respect of the principal and interest on the BOQ Home Loan totalling at least $38,977.44.
10.In the period 19 January 2012 to 8 September 2015, Greg paid all Council rates and water rates in respect of the Property. These payments are estimated to total approximately $6,500.
. . . .
15.On about 8 September 2015, [Mr Monaghan] obtained a new home loan from BOQ (in his sole name) to borrow funds to pay out the balance of the existing BOQ Home Loan over the Property, which was $261,385.13 as at 8 September 2015.
16.Therefore, as at 8 September 2015, in order to acquire 100 per cent of the Property, Greg had paid amounts totalling $391,336.01, as follows:
a. his contributions of equity, which totalled at least $129,950.88 (see paragraphs 5,7, 9 and 10 above); and
b. the loan funds he obtained from BOQ to pay out the existing BOQ Home Loan, which totalled $261,385.13.
Therefore, Greg paid full value to acquire 100 per cent of the Property as at 8 September 2015.
The “contributions of equity, which totalled at least $129,950.88” referred to in subparagraph 16(a) of the 139ZQ Response are the amounts stated in paragraphs 5, 7, 9, and 10 of the 139ZQ Response. These include the $33,500 deposit for the purchase of the Property (paragraph 5), and the amounts of $50,061.04 and $912.40 Mr Monaghan paid into the BOQ Loan Account on 19 January 2012 (paragraph 7).
The second way in which Mr Monaghan, in the 139ZQ Response, says he provided consideration for the full value of Matthew’s 40% interest (which, based on the Sharpe valuation, is stated to be $156,000), is as follows:
(a)On 3 August 2010 and 19 August 2015 Mr Monaghan lent Matthew $14,078 and $19,014.53 respectively.[73]
(b)On 8 September 2015 Mr Monaghan “acquired” Matthew’s 40% interest in the Property by:[74]
(i)paying out the BOQ Loan, “for which Matt’s 50 per cent liability totalled $130,692.57”; and
(ii)“forgiving” Matthew’s indebtedness to Mr Monaghan which totalled $33,092.53.
[73] 139ZQ Response, [12]
[74] 139ZQ Response, [18]
In his counsel’s written submissions, Mr Monaghan, relying on the evidence he gave under cross-examination, submits that, although Mr Monaghan has given different versions of the precise conversations he says he had with Matthew, I should find that Mr Monaghan proposed to forgive “all loans” Mr Monaghan made to Matthew, these totalling $50,477 or, in the alternative, $33,110.42 (this being the sum of the payments for the cars). For reasons I have already given, I do not accept Mr Monaghan’s evidence to the extent he says he had informed Matthew that he would release any car debts or “all other debts”.
Determination
The identification of the consideration Mr Monaghan gave for Matthew’s transfer of his 40% interest in the Property, and the value of that consideration, is to be determined by reference to the terms of the Transfer Agreement, the Pre Purchase Agreement, and the extent to which Matthew had performed his obligations under the Pre Purchase Agreement before 20 August 2015.
The Transfer Agreement, when implemented, provided Matthew with two classes of benefits. The first consisted of the discharge of his obligations to Mr Monaghan under the Pre Purchase Agreement.
(a)As I have already found, under the Pre Purchase Agreement, Matthew agreed he would make all of the payments on the BOQ Loan up to the equity Mr Monaghan were to contribute in relation to the Property. Mr Monaghan contributed three amounts totalling $84,473.44, these being the deposit of $33,500, and the payments of $50,061.04 and $912.40 Mr Monaghan made into the BOQ Loan Account on 19 January 2012. That means Matthew was required to make the BOQ Loan repayments on his own in amounts totalling $84,473.44, after which he and Mr Monaghan would make the loan repayments in equal shares.
(b)As at 20 August 2015, and as recorded in the Mortgage Summary, Matthew made net payments to the BOQ Loan totalling $20,653 in circumstances where the total amount of payments that were made to the BOQ Loan account was $62,866.19. That means that, as at 20 August 2015, Matthew had failed to pay amounts totalling $42,213.19, being the difference between the total amount of the payments that were made to the BOQ Loan Account ($62,866.19) and the total of the net amounts Matthew paid into the BOQ Loan Account, or to Mr Monaghan on account of the BOQ Loan. The effect of the implementation of the Transfer Agreement was to release Matthew from the obligation that had accrued by 20 August 2015 that he pay $42,866.19 into the BOQ Loan Account.
(c)Further, as at 20 April 2015, Matthew had a liability to meet future instalments on the BOQ Loan as they fell due up to $21,607.25, being the difference between the $84,473.44 amounts Mr Monaghan contributed and the $62,866.19 that had been paid into the BOQ Loan Account up to 20 August 2015. The effect of the implementation of the Transfer Agreement was that Matthew was released from making future monthly payments on the BOQ Loan up to the amount of $21,607. The value of that discharge would equate to the present value as at 20 August 2015 of the monthly payments Matthew would have been required to make up to $21,607. Assuming the monthly payments were $1,394.59,[75] the $21,607 would be paid by just over 15 monthly instalments;[76] and assuming a discount rate of 5%, the present value of $21,607 as at 20 August 2015 would have been around $20,300.[77]
[75] This being the last amount credited to the BOQ Loan Account – see CB1546
[76] $1,394.59 x 15 = $20,918.85
[77]I have used an online calculator < accessed on 6 April 2025. I inputted 15 monthly periods based on a monthly interest rate of 0.416% (5/12%).
The second class of benefit the Transfer Agreement, when implemented, conferred on Matthew was the discharge of his obligations to the BOQ under the BOQ Loan. The balance of the BOQ Loan, as at 8 September 2021, was $261,385.13; and Matthew was liable to the BOQ for the entire amount. But the true benefit that accrued to Matthew’s discharge must be assessed by reference to the Pre Purchase Agreement, which governed the payments Matthew and Mr Monaghan agreed they would make in relation to the BOQ Loan. The true benefit to Matthew of the Transfer Agreement, when implemented, was Mr Monaghan’s releasing Matthew of the rights Mr Monaghan had under the Pre Purchase Agreement in relation to the balance of the BOQ Loan owing as at 8 September 2015, namely, $261,385.13. Those rights were for Matthew to pay loan instalments up to $21,607.25, and for Matthew to pay 50% of the remaining payments. The value to Matthew of the discharge of the BOQ Loan, therefore, was the present value of his liability to pay future 15 monthly instalments totalling $21,607.25, which I have assessed at $20,300, plus 50% of the $261,385.13, adjusted to take into account the percentage of the present value of so much of the future payments totalling $21,607.25 as was to be allocated to principal, rather than interest. Based on the amounts of interest that were debited to the BOQ Loan Account on 18 July 2015, namely, $949.65, and the monthly instalment credited on 19 July 2015, namely, $1,394.59, it would be reasonable to proceed on the basis that 32% of each 15 monthly instalments would have been on account of principal.[78] Thus, the $261,385.13 balance of the BOQ Loan, as at 20 August 2015, would need to be adjusted by deducting 32% of $20,300, namely, $6,496. which means the benefit to Matthew of the BOQ Loan having been discharged on 8 September 2015 would be 50% of $254,889.13 ($261,385.13 less $6,496), namely, $127,444.56.
[78] I have derived this figure by deducting the amount of interest debited to the BOQ Loan Account on 18 July 2015 ($949.65) from the amount credited to the BOA Loan Account on 19 July 2015 ($1,394.59), dividing that amount by $1,394.59, and multiplying that amount by 100%: ($1,394.59 - $949.65)/$ 1,394.59) x 100% %.
I therefore do not accept the Trustee’s submission that the consideration Mr Monaghan gave to Matthew for his 40% interest in the Property was one dollar or, in the alternative, one dollar and an amount equal to 50% of the $261,385.13 balance of the BOQ Loan as at 20 August 2015. The consideration Mr Monaghan gave for Matthew’s 26% interest was the discharge, by means of the implementation of the Transfer Agreement, of debts totalling $189,957.75, being the sum of the following three amounts:
(a)$42,213.19, being the difference between the total amount of the payments that were made to the BOQ Loan Account ($62,866.19) which Matthew was obliged to pay under the Pre Purchase Agreement, and the net amounts totalling $20,653 Matthew paid;
(b)$20,300, being the present value of the future monthly instalments totalling $21,607.25 Matthew was required to pay under the Pre Purchase Agreement; and
(c)$127,444.56, being 50% of the $261,385.13 that was owing on the BOQ Loan as at 8 September 2015, adjusted to take into account the present value of the future payments of principal Matthew alone would have been obliged to make under the Pre Purchase Agreement.
This analysis in substance reflects the consideration Mr Monaghan alleges in paragraph 16 of the 139ZQ Response he gave for the transfer of Matthew’s 40% interest to the extent that paragraph 16 refers to the $33,500 deposit for the purchase of the Property, and the amounts of $50,061.04 and $912.40 Mr Monaghan paid into the BOQ Loan Account on 19 January 2012. There are, however, two differences. First, I have characterised the payments of $33,500, $50,061.04, and $912.40 Mr Monaghan made as “debts”, rather than equity; and second, I have given credit to the net payments Matthew made pursuant to the Pre Purchase Agreement.
In his counsel’s written submissions, the Trustee submits that whatever be the relevance of the calculation of consideration contained in paragraph 16 of the 139ZQ Response, it is not a valid way to determine consideration; and, in any event, “[s]eemingly, it is not relied on”.[79] I do not consider Mr Monaghan has abandoned his reliance on the allegations made in paragraph 16 of the 139ZQ Response, and it remains an allegation that gives rise to an issue I am bound to determine.
[79] First respondent’s submissions, [22]
Value of Matthew’s 40% interest
Subsection 120(1) of the Bankruptcy Act applies to the transfer of property where the consideration for the transfer is “of less value than the market value of the property”. In Sellers v One Step Plumbing Concrete Pty Ltd, [80] Weinberg J said there was no reason why the statements of what constitute “value” given in Spencer v Commonwealth[81] “are not equally applicable to the determination of “market value” for the purpose of those provisions”, namely, ss 120 and 121 of the Bankruptcy Act.[82]
[80] Sellers v One Step Plumbing Concrete Pty Ltd [2002] FCA 478, at [103]
[81] Spencer v Commonwealth [1907] HCA 82; (1907) 5 CLR 418
[82] See also Tyler v Thomas [2006] FCAFC 6, at [45], and at [200]-[202].
In Walker Corporation Pty Ltd v Sydney Harbour Foreshore Authority the High Court held that the notion of “value” as stated in Spencer is to be determined as follows:[83]
The result of the judicial exegesis in Spencer was summed up by McHugh J in Kenny & Good Pty Ltd v MGICA (1992) Ltd as follows:
“Value is determined by forming an opinion as to what a willing purchaser will pay and a not unwilling vendor will receive for the property. In determining that value, there must be attributed to the parties a knowledge of all matters that affect its value. Those matters will include the predicted impact of future events as well as the experience of the past and the rates of return on other investments. As Isaacs J pointed out in Spencer v The Commonwealth:[84]
‘We must further suppose both to be perfectly acquainted with the land, and cognisant of all circumstances which might affect its value, either advantageously or prejudicially, including its situation, character, quality, proximity to conveniences or inconveniences, its surrounding features, the then present demand for land, and the likelihood, as then appearing to persons best capable of forming an opinion, of a rise or fall for what reason soever in the amount which one would otherwise be willing to fix as the value of the property.’ (emphasis added)
The market for the property is, therefore, assumed to be an efficient market in which buyers and sellers have access to all currently available information that affects the property.”
[83] Walker Corporation Pty Ltd v Sydney Harbour Foreshore Authority [2008] HCA 5, at [51] (footnotes omitted)
[84] Spencer v The Commonwealth [1907] HCA 82; (1907) 5 CLR 418
The Trustee submits that the market value of Matthew’s interest in the Property is $190,000. The Trustee relies on a valuation report prepared by Mr Bird (Bird report) who valued the Property at $520,000 as at 20 August 2015. Mr Monaghan, on the other hand, submits that Matthew’s 40% interest, as at 20 August 2015, was around $150,000; and he relies on a valuation report prepared by Mr Rutledge (Rutledge report).
The determination of the value of Matthew’s 40% interest, therefore, will largely turn on my assessment of the valuation opinions Mr Bird and Mr Rutledge give in their respective reports. Before I consider those opinions, it will be necessary to set out some principles that are relevant to a court assessing expert valuation opinions.
Assessment of “Value”
Both Mr Bird and Mr Rutledge arrived at their valuations of the Property as at 20 August 2015 by purporting to apply the “traditional, and usually unexceptionable method”[85] that is often referred to as the “comparable sales method” or “direct comparison approach”. Under this method, the valuer seeks “out relatively contemporaneous sales of comparable properties between parties at arm’s length, unaffected by special circumstances, such as, for example, a strong desire by a purchaser to buy an adjoining property, and to use those sales as a yardstick for the valuation of the relevant land”.[86] The comparable sales method is used where possible because the best evidence of the market value of land is “that of comparable sales of other land either before or after the date” on which land is to be valued.[87]
[85] Maurici v Chief Commissioner of State Revenue [2003] HCA 8, at [16]
[86] Maurici v Chief Commissioner of State Revenue [2003] HCA 8, at [16]
[87] Commonwealth v Arklay [1952] HCA 76, at [4]; (1952) 87 CLR 159, at page 170
The meaning of “comparable sales”, and how “comparable sales” may be used to assess market value, were described by Wells J in Crompton v Commissioner of Highways:[88]
Upon reading some works on comparable sales, one might be pardoned for supposing that, within narrow limit of tolerance, sales of land similar to the subject land must fall into two rigid categories: comparable sales and non-comparable sales. Such a supposition would, in my opinion, be an oversimplification and could lead into error. It seems to me that, ideally, the valuer should, in the first instance, look at the sales of land over a wide geographical, and temporal range, and from these select those that appear potentially useful as a basis for comparison. Those selected should then be carefully analysed by reference to an extensive list of characteristics of land sales the compilation and assessment of which fall clearly within the province of experts. Whether or not one or more of those sales is, and how it or they ought, to be compared with the subject land becomes a matter of degree, and a final decision is reached, often by those same experts drawing a series of nice distinctions. Obviously, no two sales of land will be found to be the same, or even similar in all respects. Those that bear a close similarity to the assumed sale of the subject land will be more reliable than those whose similarity is less proximate and in respect of which adjustments or allowances must be made before they can be safely introduced into the valuation process. At a particular point it will be found that, in respect of the remaining available sales, the adjustments and allowances that would need to be made are of such magnitude that it ceases to be safe or sound to treat them as sufficiently similar to the assumed sale of the subject land, and they must thenceforth be rejected.
[88] Crompton v Commissioner of Highways (1973) 5 SASR 301, at page 317
Wells J provided a fuller description of the comparable sales methodology in Brewarrana Pty Ltd v Commissioner of Highways (No.2):[89]
It is general valuation practice for sales characterized as comparable sales to be used as bases for the valuation of lands said to be similar. But allowances must always be made before such sales can be so used. No two parcels of land are identical in all respects: the sale price of any given piece of land is not necessarily the price at which it ought to have been sold, or the same thing as its true value. Before using any allegedly comparable sale, therefore, the valuer must consider whether, having regard to the circumstances (using that word in its broadest sense) appertaining to the parcel of land in question, and to the transaction of sale, there are sufficient similarities to the circumstances appertaining to the subject land and to the notional sale presupposed by the test formulated in Spencer v. The Commonwealth of Australia and in later cases to warrant a court’s reasoning from the sale price paid under the allegedly comparable sale, with or without other evidence, to a value for the subject land. Adjustments must, of course, be made every time reasoning of that kind is undertaken. For example, in relation to the land itself and the circumstances appertaining to it, it may be necessary to consider such matters as topography, location, size, shape, slope, view, land use (actual and potential), scope for, and difficulties of, development, services and amenities; and in relation to the transaction of sale, the valuer must weigh such things as the character, business and relationships of the parties, their motives, the terms and conditions in their contract of sale, and any other special considerations that induced or may have induced them to conclude the contract at the selling price agreed, as well as the dates when the contract of sale and the transfer were concluded or effected. I do not for a moment pretend that I have been exhaustive. What I am concerned to emphasize is that, as I understand the evidence, and according to the inferences that I feel I can safely draw from it, there is no hard and fast rule by the application of which a valuer may, whatever the circumstances, draw the line that clearly separates the sales that are comparable from those that are not. It is, in my view, all a matter of degree: some adjustment is always necessary; too much adjustment will render it unsafe to use a sale, subject to such a degree of adjustment, for the purpose of the reasoning process in the comparable sales method. Just where the line is to be drawn is, it seems to me, the very sort of question that is fit for the expert valuer to determine; the assessment of the risks of adjustment is peculiarly within his sphere of skill. The valuer must use his skill to winnow out the element of comparability if it is there, and use it with discretion. It is perhaps worth while adding that just because a sale is excluded from use in the comparable sales process of reasoning, it does not necessarily follow that it must be discarded from all consideration. The evidence in this case suggests strongly to my mind that, at the initial stages, a valuer will almost certainly look at all known sales in potentially relevant areas, if for no other reason than to discern patterns of prices and changes in price levels over important periods. He will, while doing so, also be culling possibly comparable sales for further consideration. The process, seen as a whole, is not unlike that of using items of circumstantial evidence that possess varying degrees of cogency and weight.
[89] Brewarrana Pty Ltd v Commissioner of Highways (No.2) (1973) 6 SASR 541, at pages 550-551
Also relevant are the following observations of McLure J in Western Australian Planning Commission v Arcus Shopfitters Pty Ltd:[90]
In my view, there is no requirement that a valuer identify the most important comparable sale. There is a requirement that a sufficient sample of comparable sales be collected and analysed collectively and individually. Having performed the analysis, a valuer in the course of the process is likely to attach different weights to individual sales and if so will be able to identify the sale or sales to which he can appropriately accord the greatest weight. On this approach comparable sales are weighted but the sample remains representative and sufficient in volume.
[90] Western Australian Planning Commission v Arcus Shopfitters Pty Ltd [2003] WASCA 295, at [52] (Anderson and Steytler JJ agreeing).
The evidence on which the Trustee principally relies for submitting that it can reasonably be inferred from all the circumstances that, at the time of Matthew transferred his 40% interest in the Property, he was, or was about to become, insolvent, is a report the Trustee prepared titled “Insolvency Report” dated 5 May 2023 (IR). The IR may be summarised as follows:
(a)The purpose of the IR is to provide an opinion on Matthew’s solvency as at 20 August and 28 September 2015.[131]
[131] IR, [6]
(b)In preparing the IR, the Trustee:[132]
[132] IR, [8]
(i)considered Matthew’s position as a whole;
(ii)has had regard to “the resources available to the bankrupt whether by cash or realisation of assets or by borrowings”;
(iii)conducted an analysis on the basis of the 2015 financial year;
(iv)considered the definition of income based on his extensive experience and in accordance with Official Trustee Practice Statement 1, and s 139L and s 139M of the Bankruptcy Act;
(v)conducted an analysis of Mr Monaghan’s solvency, in the first instance based on his 2015 income tax return, and the expenses incurred in the corresponding period on his personal bank statements for the 2015 financial year;
(vi)when it became evident the information disclosed in Matthew’s 2015 income tax return was inaccurate, the Trustee performed an analysis of Matthew’s “solvency position on a cashflow basis based on a review of bank statements” from the bank accounts listed in section 10 of the IR;
(vii)provided alternative views by performing an analysis of Matthew’s solvency position on a cashflow basis based on the review of bank statements for the years ending 20 August 2015 and 28 September 2015; and
(viii)conducted an analysis of Matthew’s position based on a review of his assets and liabilities.
(c)The Trustee identified four bank accounts, three of which Matthew held jointly, one with Mr Monaghan, one with BPM, and one with what may be inferred is his domestic partner.[133]
[133] IR, [9]
(d)In a section headed “Expense Categorisation”, the Trustee identified 14 categories of “expenses”. These include items that are clearly debts (such as “ATO Debt Payments”, “rent”, “St George Finance”, “Loan repayments”, bank fees, rates, utilities, credit card payments and legal fees), and items that do not appear to be debts, such as “Entertainment” (being “payments made by the Bankrupt that include payments for gambling, such as for lotteries, hotels, taverns, sports clubs, travel by uber or taxis and general recreational activities”).
(e)For the year ended 30 June 2015 Matthew earned income of $111,054.19 and had total “expenses” of $118,819.20, resulting in a net deficiency of $7,765.01.[134]
[134] IR, [11.2.2]
(f)For the year ended 20 August 2015 Matthew earned income of $85,793.68 and had total “expenses” of $98,784.57, resulting in a net deficiency of $12,990.89.[135]
[135] IR, [11.3.2]
(g)For the year ended 28 September 2015 Matthew earned income of $72,197.41 and had total “expenses” of $75,775.14, resulting in a net deficiency of $3,977.73.[136]
(h)In a section headed “Obligations Unpaid”, the Trustee identified the following:
(i)The BOQ Loan, concluding that Matthew was unable to pay “his mortgage liability”.[137]
(ii)“Loans & Dishonoured Payments”. The Trustee notes Matthew “was unable to pay his mortgage liability”.[138]
(iii)Seven “dishonoured transactions” from 15 May 2015 to 17 August 2015 in relation to the “Sunshine Loan” totalling $1,902.60. The Trustee says that the “dishonoured payments demonstrate that the Bankrupt was experiencing cash-flow difficulties”. [139]
(iv)An additional two “Sunshine Loan” dishonoured transactions on 14 September 2015, and one “Money[M]e” dishonoured transaction on 24 August 2015, totalling $1,736.99.[140]
(i)In a section headed “Adjusted Financial Position” the Trustee took into account “dishonoured transactions” of $269.93 (and, in the alternative, $2,171.93) and $7,226.88 (being 40% of the mortgage BIQ Loan repayments Matthew failed to make) (or, in the alternative $18,066.72, being 100% of the mortgage repayment obligations) resulting in a negative cashflow of $20,487.70 (or in the alternative $33,229.54).[141]
(j)The Trustee presents a “balance sheet analysis”, which records a deficiency of $115,122.[142]
[136] IR, [11.4.2]
[137] IR, [11.5.2]
[138] IR, [11.5.1]
[139] IR, [11.5.2]
[140] IR, [11.5.2]
[141] IR, [11.5.3]
[142] IR, [12]
In evidence given under cross-examination, the Trustee said that, when assessing Matthew’s solvency, he did not take into account the availability of money from Mr Monaghan:[143]
MR ROBERTSON: ‑ ‑ ‑ in your investigation, you have identified that frequently Greg Monaghan advanced funds to his son?‑‑‑Yes.
All right. And that was a cash resource in Matthew’s hands when it was advanced to him. Do you accept that?‑‑‑Yes.
How does that then sit with your conclusion on page 28 of your report – court book 162?‑‑‑28 of my report?
Yes. Under the heading 14.5, No Access to Alternative Finance, where you stated:
Based on my investigation, the documents do not disclose the bankrupt having any ability to access alternative finance from other sources.
?‑‑‑Well, I didn’t consider a loan – an advance from his father to be in that category. I mean, it’s very discretionary. It may have been there, it may not have been there. He may have had a fight with his father, he may – his father may have decided not to lend him any money. It’s not as though he had a kind of a commercial access to it, a regular access to bank kind of loans. So, I mean it’s a bit subjective, but I didn’t consider that to be something I could rely on for definition of solvency.
[143] T295.15-T295.35
Also in evidence he gave under cross-examination, the Trustee said that the only debts Matthew had as at 20 August 2015 are the debts listed in the balance sheet, these being as follows:
Current Liabilities
Sunshine Loans
$1,240
MoneyMe
$496
Gregory Monahan
$33,082
Total Current Liabilities
$34,818
Non-Current Liabilities
BOQ
$261,385
HELP Debt
$12,950[144]
Total Non-Current Liabilities
$274,335
[144] The IR, at [12.1.17], notes that the “HELP Debt of $12,950” appeared in Matthew’s 2015 income tax return, and further notes that HELP debts provide financial help for students to pay for study costs and is repayable when the individual earns above a certain threshold.
Also in evidence he gave under cross-examination, the Trustee accepted that:
(a)the $1,240 Sunshine Loan was repaid in full on 21 September 2015,[145]
(b)on 22 September 2015 Matthew obtained a loan of $1,488 from Sunshine Loan Centres, and Matthew “indeed paid it back”;[146]
(c)all of the loans which Matthew obtained from Sunshine Loans during 2015 he repaid in full as and when they were due and payable;[147] and
(d)Matthew repaid the MoneyMe loan on 25 November 2015.[148]
[145] T284.10
[146] T285.5
[147] T285.25
[148] T286.5
Parties’ Submissions
In his counsel’s written submissions, the Trustee submits Matthew was insolvent because:
(a)before Mr Monaghan paid out the St Geoge Loan, Matthew had been in arrears for four months;[149]
(b)Matthew failed to make payments on the BOQ Loan;[150]
(c)Matthew failed to pay relatively small amounts he owed to his lawyers;[151]
(d)In the face of an apprehended civil suit, Matthew’s solicitor advised him to get rid of his assets;[152] and
(e)Matthew’s outgoings exceeded his income.[153]
[149] First respondent’s submissions, [91.a.]
[150] First respondent’s submissions, [91.b.]
[151] First respondent’s submissions, [91.c.]
[152] First respondent’s submissions, [91.d.]
[153] First respondent’s submissions, [95]
Mr Monaghan, in his counsel’s written submissions, submits that:
(a)the Trustee did not apply the test of solvency provided for by s 5(2) of the Bankruptcy Act;[154]
(b)the Trustee did not take into account the fact that Mr Monaghan was a source of available funds;[155]
(c)the Trustee did not identify a single debt Matthew did not repay in the year ended 20 August 2015.[156]
[154] Applicant’s outline of submissions, [99(a)]
[155] Applicant’s outline of submissions, [99(b)]
[156] Applicant’s outline of submissions, [99(c)]
Determination
I accept Mr Monaghan’s submission that the Trustee has not directed his mind to the question he ought to have directed in determining whether Matthew was insolvent, namely, whether Matthew was unable to pay his debts as and when they fell due. The question the Trustee asked and sought to answer was whether Matthew’s outgoings exceeded his ingoings; but the fact that a person’s outgoings exceed ingoings does not by itself mean the person is a person that is not able to pay his or her debts as they fall due. Whether a person is unable in those circumstances to pay his or her own debts requires an analysis of the persons financial position, considered as a whole, and whether the person has ready access to money or liquid assets with which to pay his or her debts as they fall due.
This was a matter I explored with the Trustee when he was giving evidence; and the end result of my exchange with the Trustee is as follows:[157]
Well . . . . just explain to me on what basis one can infer that merely because I’m spending $98,000 and earning $85,000 that, by itself, can be any evidence that I’m not in a position to pay my debts as and when they fall due?‑‑‑It’s not.
So, why is it in your report?‑‑‑It’s not. Because it’s there because of all of the other things. This is ‑ ‑ ‑
Okay. Well, how does this fit in with all the other things?‑‑‑Well, we looked at it as at 30 June ’14, ’15, August. We looked at a – we looked at a number of different periods of time and for each of those relevant periods of time he has spent more money historically than what he earned. That difference, that deficiency, has to be funded somehow. He can’t – either it’s funded out of savings that he once upon a time had, we can’t see that; it’s funded by money he has been given, we can’t see that; or it has been funded by money that he has been loaned. Okay. So, it has been funded by the debts that we currently have. That’s where the two things fit together, okay. That’s – we’ve just – just made an effort to see if we look at it through that particular lens.
All right?‑‑‑It is not the same as a business or a company matter. We’re just looking at the bank – we did look at it another way. We looked at his – we looked at his tax returns for the period 30 June ’15, I think it was – I just have to dive back to the report – and we compared that with his expenses to try and look at it through a different type of lens, and each different type of lens we looked at we come up with, for the given period, him simply spending more money than he’s actually earning . How is he funding that? He’s borrowing the money somewhere, somehow, or he’s spending it out of savings, but we can’t see that he had savings.
And even if that’s your conclusion, how do you arrive at the conclusion that he can’t pay his debts as and when they fall due?‑‑‑Well, sooner or later, if you’re borrowing more money, if you’re spending more money than you’re earning, you’re going to run into a situation where you can’t – you’re going to borrow money to a point you can’t pay it back. It’s like a Ponzi scheme.
But do you know – but that can take six months, it can take three years, it can take 10 years, can’t it?‑‑‑It could, it could indeed.
So, again, assuming at some point of time you’ve got to fund it, how is the fact that you’re spending more than you’re earning which leads to the conclusion that you must be obtaining money from some other sources, be it gift or loan, how do you go from that to the conclusion that the person is unable to pay his or her own – his debts as they fall due as at, in this case, 20 August 2015?‑‑‑On it’s – on its own, that would not be – that would be completely insufficient, I accept that, on its own. But we also see that he’s not meeting his repayment schedule to Potts Lawyers at the same time; he’s not meeting the repayments to BOQ at the same time; he wasn’t able to meet his payments to the – the car payment loans to the point that he was having his car repossessed. So, when you take all of that into consideration, Matthew Monaghan, the bank route was really stringing it along. He wasn’t meeting his debts when they fall due, otherwise he wouldn’t have had the sheriff knocking on his door trying to take the car off of him. The only reason he gets out of that is because Greg Monaghan comes and lends him some money and gets him out of strife. Now, if that is – if that is accepted at the end of the day as a – as a reliable source of funds, so be it.
[157] T298.25-T299.25
From this evidence, it appears the Trustee assessed the solvency of Matthew by reference to particular examples of Matthew not meeting financial obligations the Trustee considered Matthew owed. But this approach, too, is flawed; and that is because the Trustee has not taken into account the “commercial realities” that Mr Monaghan was funding his son, Matthew. Thus, although it is true that Matthew was not making payments towards the BOQ Loan, contrary to the Pre Purchase Agreement, Mr Monaghan was meeting his and Matthew’s obligations under the BOQ Loan by making the required payments; and the evidence overwhelmingly supports the inference, and I find, that Mr Monaghan was willing to financially accommodate Matthew; and he was so willing by not insisting on Matthew making the payments he was obliged to make under the Pre Purchase Agreement until Mr Monaghan and Matthew agreed that Matthew would transfer his 40% interest in the Property in discharge of the amounts Matthew owed and would come to owe under that agreement. Further, the Trustee did not consider the reasons for which Matthew’ defaulted on his car loan, and in particular, whether it was due to a temporary lack of liquidity or even something more basic, such as Mr Monaghan’s not being made aware that Matthew had defaulted on his car loan much before the date on which Mr Monaghan paid out the car loan debt.
In any event, even if it be assumed the Trustee asked himself the correct question, the Trustee’s analysis is incapable of supporting a finding that Matthew was or was unable to pay his debts. The Trustee assumes that all of Matthew’s outgoings - for example the entertainment expenses of $28,611 and the “cash withdrawals” of $43,991- were relevant to determining whether Matthew was able to pay his debts; but the Trustee does not explain why that is so. On their face, the entertainment expenses, and potentially the $43,991 cash withdrawals, constituted discretionary spending by use of money that was otherwise available to Matthew to discharge debts he owed. If that be so, the $28,611 Matthew spent on entertainment and, potentially, the “cash withdrawals” of $43,991, were available, and were more than sufficient, to meet all of Matthew’s debts the Trustee identified; and the explanation for Matthew’s not using the money he spent on entertainment and the “cash withdrawals” to pay debts would not be that he was unable to do so, but that he was unwilling to do so. An unwillingness to pay debts does not necessarily imply an inability to do so.[158]
[158] See Re Sarina; Ex parte Wollondilly Shire Council [1980] FCA 138; (1980) 32 ALR 596, at page 599: “The words "able to pay his debts" in s 52(2) of the Act do not mean "willing and able" to do so.” (Bowen CJ, Sweeney, Lockart JJ).
The Trustee, therefore, has not discharged the burden of proving that it can reasonably be inferred from all the circumstances that, at any time from 19 February 2015 to 8 September 2015, Matthew was, or was about to become, insolvent.
Matthew’s purpose
The Trustee submits there is sufficient evidence to find that Matthew’s objective intention as at 19 February 2015 was to defeat, or delay or hinder, his creditors. The Trustee relies on Matthew’s having been involved in a scuffle for which he was criminally charged and ultimately received a suspended sentence; Matthew’s “criminal lawyer told” Matthew to get anything he has out of his name; and that either Matthew or Mr Potts explained to Mr Monaghan that the reason was “a civil case”, “damages or something like that”.[159] The Trustee further submits that the email Mr Monaghan sent to Mr Bolster on 19 February 2015 “stands as the only contemporaneous objective evidence of Matthew’s motivation in entering into the transaction”.[160]
[159] First respondent’s submissions, [77]
[160] First respondent’s submissions, [78]
The material on which the Trustee relies is incapable of rationally grounding an inference that Matthew decided to transfer his 40% interest in the Property to prevent, or hinder or delay, his interest from becoming divisible among his creditors.
(a)First, the email Mr Monaghan sent to Mr Bolster on 19 February 2015 repeated advice Mr Potts apparently gave to Matthew. There is no basis for inferring that Matthew himself decided to take action to transfer his 40% interest in the Property, or that he so decided because he intended to prevent, or hinder or delay, his interest from becoming divisible among his creditors.
(b)Second, it is tolerably clear from Mr Monaghan’s email to Mr Bolster on 19 February 2015 that it was Mr Monaghan who decided that Matthew should transfer his 40% interest in the Property. Further, Mr Monaghan gave evidence under cross-examination that he “had already made up [his] mind well before this time . . . about getting Matt off that document - off that loan” because Matthew “owed us a considerable amount of money”, and Mr Monaghan had tried to teach Matthew “the principle of paying your money back and not keep taking money out”. [161] I accept that evidence because it reflects what occurred; Matthew had ceased making payments into the BOQ Loan account from July 2014, contrary to the terms of the Pre Purchase Agreement.
(c)Third, apart from a vague reference to some forthcoming law suit against Matthew, there is no evidence of the existence of any creditor or creditors Matthew could have had in mind as intending to defeat by disposing of his 40% interest in the Property. The evidence reveals that St George Bank was Matthew’s only creditor who had been pressing for payment before 19 February 2015 when Mr Monaghan sent his email to Mr Bolster; but Matthew and Mr Monaghan had dealt with this by Mr Monaghan paying the debt Matthew owed to St George Bank, not by Matthew and Mr Monaghan joining in a transaction that was designed to defeat Matthew’s creditors.
[161] T126.10-T126.25
I am not satisfied that Matthew decided to transfer his 40% interest in the Property to prevent Matthew’s 40% interest in the Property from becoming divisible among his creditors, or to hinder or delay the process of making his interest available for division among the transferor's creditors. On the contrary, I am satisfied that Matthew transferred his 40% interest in the Property at the initiation of Mr Monaghan who so acted because Matthew had ceased making payments to the BOQ Loan Account since July 2014.
Subsection 121(4)
If, contrary to what I have found, Matthew did have the intention of defeating his creditors, I am satisfied that Mr Monaghan could not reasonably have inferred any such intention. As I have already found, Mr Monaghan initiated the transfer of Matthew’s interest in the Property because Matthew had failed to comply with the Pre Purchase Agreement; and he did so in circumstances where Mr Monaghan had paid a debt Matthew owed to a creditor, namely, the St George Bank, rather than ignoring that debt and seeking to defeat St George Bank taking a transfer of Matthew’s 40% interest in the Property. Further, even if, contrary to my findings, Matthew was insolvent, Mr Monaghan could not have inferred that fact. As I have already found, Mr Monaghan funded Matthew; and the inference is available to be drawn, and I find, that Mr Monaghan was willing to continue to do so, at least up to the time Matthew was to transfer his 40% interest in the Property.
Thus, even if the Trustee were to have made out his case under s 121(1) of the Bankruptcy Act, Mr Monaghan would have been entitled to rely on the defence provided for by s 121(4) of the Bankruptcy Act.
Conclusion
The Trustee’s claim under s 121 of the Bankruptcy Act, therefore, also fails.
DISPOSITION
The Trustee has failed in his claims under s 120 and s 121 of the Bankruptcy Act. I therefore propose to order pursuant to s 139ZS(1) of the Bankruptcy Act that the 139ZQ Notice be set aside; and that the interim application the Trustee filed on 11 May 2022, as amended by the order I made on 8 November 2023, be dismissed. I will also order that the Trustee pay Mr Monaghan’s costs, subject to reserving to the parties liberty to apply within 35 days after I pronounce orders to vary or discharge the order for costs I propose to make.
I certify that the preceding one hundred and sixty-four (164) numbered paragraphs are a true copy of the Reasons for Judgment of Judge Manousaridis. Associate:
Dated: 9 April 2025
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