Australian Softwood Forests Pty Ltd v Attorney-General (NSW) (Ex Rel Corporate Affairs Commission)

148 CLR 121
36 ALR 257

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(Judgment by: Mason J)

Between: Australian Softwood Forests Pty Ltd
And: Attorney-General (NSW) (ex rel Corporate Affairs Commission)

Court:

Judges: Gibbs CJ
Stephen J

Mason JMurphy J
Wilson J

Hearing date: 4 December 1980
Judgment date: 18 September 1981

Canberra

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Judgment by:
Mason J

This is an appeal from the NSW Court of Appeal which dismissed an appeal from a decision of Helsham C.J. in Eq. The Corporate Affairs Commission ("C.A.C." ), for whom the Attorney-General for New South Wales ex relatione the C.A.C. was later substituted, had sought declarations that: (1) the interests of various growers under agreements with the first three appellants for the purchase, planting and tending of pinus genus plants on certain land were "interests" within the meaning of Div. 5 of Pt IV of the Companies Act 1961 (NSW), as amended ("the Act"); and (2) the acquisition by the growers of these interests and the circumstances preceding this acquisition involved an issue or offer to the public of those interests for subscription or purchase or an invitation to the public to subscribe for or purchase the interests.

If this were the position the appellants would have breached requirements imposed in Div. 5 of Pt IV of the Act. The C.A.C. also sought injunctive relief.

Helsham C.J. in Eq. granted a declaration that in relation to their respective agreements with the first three appellants each grower, when the agreement became binding, obtained an actual, prospective or contingent interest in the assets of a business undertaking or scheme within the meaning of par.(a) of the definition of "interest" in s 76 (1) of the Act and that in the acquisition by the growers of their interest and in the circumstances preceding such acquisition there was involved an issue or offer to the public for subscription or purchase. His Honour also restrained the appellants from issuing or offering to the public for subscription or purchase or inviting the public to subscribe for or purchase any interest under any agreement relating to the purchase, planting and care of pinus genus plants on the relevant land except in accordance with the provisions of Div. 5 of Pt IV of the Act.

In the Court of Appeal Hutley J.A. (with whom Reynolds and Samuels JJ.A. agreed) held that the scheme involved the creation of "interests" within s. 76 of the Act, probably on a wider basis than at first instance, and that the provisions of Div. 5 of Pt IV had been breached. However, his Honour considered that:

"This is not a proper case for declarations which are little more than prefatory averments to the grant of an injunction."

Instead he proposed an injunction similar in substance but different in form from that originally awarded. However, this injunction was not included in the formal order announced by the Court. Presumably the omission was an oversight.

The case was first argued on the basis of a statement of agreed facts which were summarized by Helsham C.J. in Eq. The first three appellants (labelled "the company" as each did the same thing) owned plantations considered suitable for growing pine trees. A plan divided the plantations into a number of portions with fire breaks between blocks of portions and around the perimeter of the plantation.

A person wishing to participate in this venture ("the grower") agrees with the company to take up one or more portions. The company agrees to allocate the grower a specified portion or portions and he agrees to buy from the company a certain number of trees which it will plant, tend and maintain until maturity. The grower pays a purchase price for the trees and a sum, payable by monthly instalments, for planting etc. Upon maturity, or when the trees are marketable in the opinion of the company, it notifies the grower who must then within six months cause the trees on his portion to be felled and removed at his risk and expense "as his property". Unless he notifies the company of his intention to do this within one month of service of the company's notice he is deemed to have appointed the fourth appellant as his agent to fell and remove the trees. An agreement to be entered into between the grower and fourth appellant sets out the conditions of agency. Once appointed by that agreement the fourth appellant becomes the exclusive agent to fell, remove and dispose of the trees as timber and pays the growers 80 per cent of the net proceeds of realization. In the event of loss of the trees by fire due to negligence of the company the grower is only entitled to have his portion replanted by the company.

The summons sought declarations with respect to nine plantations but the statement of agreed facts does not touch on three of them. This is of no moment in this appeal. The point was neither raised in the notice of appeal to the Court of Appeal nor drawn to the attention of this Court in the special leave application. The respondent has accepted in argument that a declaration with respect to one of the plantations would be sufficient.

Helsham C.J. in Eq. stated that the public became involved in the venture through salesmen, called brokers, who were appointed to procure persons to sign up with the company. His Honour found that the brokers:

"operate by learning of interested persons in three ways,

(1)

where such a person has made contact with the company, which refers him to a broker, or

(2)

where such a person contacts a broker directly (usually via a grower), or

(3)

where the broker calls on him. The company does not advertise or make, other than as above, personal approaches to solicit growers."

Finding (3) omits a qualification in the agreed facts which stated as the third method of contacting growers that:

"such persons are approached by a broker at the request of an existing grower to whom - usually, if not invariably - a request has previously been made by such person that the broker be asked to call when next in the area."

Nevertheless, as will be seen, this omission does not affect the answers to the question whether an issue, offer or invitation was made "to the public" within Div. 5 of Pt IV of the Act

(1) "Interest" within s. 76 of the Act

The definition of "interest" in s. 76 (1) of the Act is wider than "interest" in its ordinary legal sense. Section 76 (1) provides that in Div. 5 of Pt IV of the Act, unless inconsistent with the context or subject matter:

"'Interest' means any right to participate, or interest, whether enforceable or not and whether actual prospective or contingent -

(a)

in any profits, assets or realisation of any financial or business undertaking or scheme whether in the State or elsewhere;

(b)

in any common enterprise whether in the State or elsewhere in which the holder of the right or interest is led to expect profits, rent or interest from the efforts of the promoter of the enterprise or a third party; or

(c)

in any investment contract, whether or not the right or interest is evidenced by a formal document and whether or not the right or interest relates to a physical asset... "

The definition goes on to exclude:

"(d)

any share in or debenture of a corporation;

(e)

any interest in or arising out of a policy of life insurance;

(f)

an interest in a partnership agreement, unless the agreement or proposed agreement -

(i)

relates to an undertaking, scheme, enterprise or investment contract promoted by or on behalf of a person whose ordinary business is or includes the promotion of similar undertakings, schemes, enterprises or investment contracts, whether or not that person is, or is to become, a party to the agreement or proposed agreement; or

(ii)

is or would be an agreement, or is or would be within a class of agreements, prescribed by the regulations for the purposes of this paragraph; or

(g)

a prescribed right or interest or a right or interest of a prescribed class or kind declared by the regulations to be an exempt right or interest for the purposes of this Division."

"Investment contract" is defined by the same sub-section to mean:

"any contract scheme or arrangement which in substance and irrespective of the form thereof involves the investment of money in or under such circumstances that the investor acquires or may acquire an interest in or right in respect of property whether in the State or elsewhere which under or in accordance with the terms of investment will, or may at the option of the investor, be used or employed in common with any other interest in or right in respect of property whether in the State or elsewhere acquired in or under like circumstances."

Paragraph (a) of the Definition of "Interest"

In attempting to apply the statutory definition of "interest" to the transactions already outlined, we must ask ourselves, first, whether there is a "financial or business undertaking or scheme" and, secondly, what are its elements. We begin with the circumstance that the words in question are of very wide import. For example, all that the word "scheme" requires is that there should be "some programme, or plan of action" (Clowes v. Federal Commissioner of Taxation (1954) 91 CLR 209 , at p 225 ). The next step is that, in contradistinction to s. 26 (a) of the Income Tax Assessment Act 1936, as amended, which, as Clowes shows, is directed to a profit-making undertaking or scheme carried on by the taxpayer, the statutory definition is not concerned with the identity of the person or persons who carry it on. It is not material that the person who offers the "interests" to the public does not himself carry on the undertaking or scheme. Nor does it matter that by subscribing for an interest a member of the public will constitute himself as one who is engaged in carrying on the enterprise.

Nor again does it matter that the subscriber by accepting the offer constitutes himself as one who executes some elements of the scheme and derives from so doing a financial advantage which is not earned by other participants whose activities relate to other elements in the scheme. It is not an objection to an enterprise qualifying as an undertaking or scheme that it consists of a number of parts or elements, the participation of individual parties being limited to one of these parts or elements, their profit or remuneration being derived from the particular activities in which they engage. There is nothing in the notion of an undertaking or scheme that requires or implies that there is joint participation in everything comprised in the plan or that there must be a share or pooling of profits or receipts.

Apart from any considerations which may be derived from the general context in which the statutory definition appears, there is no very good reason for reading the words down. The context is that of prohibitions against issuing or offering to the public for subscription or purchase or inviting the public to subscribe for or purchase "interests" unless there is in force in relation to them an approved deed and unless there is provided information similar to that which is prescribed in connexion with an offer to the public of shares. Indeed, the prospectus provisions of the Act are applied to offers to the public of "interests" as if they were shares (s. 82 (2)). This context supplies no reason for denying that the proposed activities constitute a "financial or business undertaking or scheme" within the meaning of the statutory definition.

That a very wide meaning should be given to "interest" is attested by the exclusion from the statutory definition of shares and debentures (par. (d)), interests in life assurance policies (par. (e)) and, subject to some qualification, interests in partnership agreements (par. (f)). The presence of the power to exempt by regulation other rights or interests from the definition (par. (g)) is also of telling significance.

There are real difficulties in the suggestion that the court can read down the very comprehensive definition of "interest" by reference to the supposedly unintended consequences of a literal reading on everyday commercial transactions. The definition is so general and all-embracing that it is impossible to say that it necessarily excludes particular transactions which appear to be covered by the general words. The hazards of adopting such a course are not dispelled by the absence of a supporting context. It would be different if we could glean from the legislative provisions an overall purpose which, being limited in scope, justified a reading down of the definition. Unfortunately in this case the search for a legislative purpose takes us back to the very words of the definition for the intended scope of the operative provisions depends so heavily on the comprehensive language of that definition. As Young C.J. observed in A Home Away Pty. Ltd. v. Commissioner for Corporate Affairs (1981) VR 475, at p 478, in discussing the meaning of "interest" as defined in s. 76 (1):

"If it were said that we should give effect to the purpose Parliament wished to achieve, we must first ascertain the purpose and that can only be ascertained from the language used."

What is the nature of the grower's rights under his agreement with the company? Do they amount to a profit a prendre or to a licence coupled with an interest? An examination of these questions will assist us in deciding whether the grower has a right to participate or an interest in the assets of the undertaking or scheme.

A profit a prendre is generally described as a right to take something off another person's land (Duke of Sutherland v. Heathcote (1892) 1 Ch 475 ), or to take something out of the soil, including portion of the soil itself (In re Refund of Dues under Timber Regulations [1935] AC 184 , at p 193 ). The right to take timber off another person's land has given rise to a problem of classification. The general rule was that in the case of fructus naturales (which included growing timber) if the property was to pass to the purchaser before severance from the soil, but the thing was to remain in the land for further growth, an agreement for the sale of the timber was a contract for the sale of an interest in land; aliter if property was to pass after severance - then it was a contract for the sale of goods (Voumard, Sale of Land in Victoria, 3rd ed. (1978), pp. 54-55; Marshall v. Green (1875) 1 CPD 35 ). Accordingly, if the trees were to be left on the land for the advantage of the purchaser so that he would derive benefit from further growth, then the contract was for the sale of an interest in land. If, on the other hand, the purchaser was to enter and take the timber immediately, he would derive no benefit from the land and the contract was one for the sale of goods. This was the criterion stated by Lord Coleridge C.J. in Marshall v. Green (1875) 1 CPD, at pp 38-39.

In Lavery v. Pursell (1888) 39 Ch 508 Chitty J. held that a contract for the sale of the building materials on a house, possession of the premises to be given to the purchaser for the purpose of taking down and removing the materials within two months was a contract for the sale of an interest in land. Subsequently the expression "goods" was defined in s. 5 of the Sale of Goods Act 1923 (NSW) as amended, to include:

"all chattels personal other than things in action and money. The term includes emblements and things attached to or forming part of the land which are agreed to be severed before sale or under the contract of sale."

It may be the presence of this definition that has induced courts in later cases to hold that a contract for the sale of growing timber under which the purchaser has the right to enter the land, cut and remove the timber immediately is a contract for the sale of goods. This is presumably on the footing that the property in the timber passes when it is severed from the land under the contract of sale. See McCauley v. Federal Commissioner of Taxation (1944) 69 CLR 235 , at pp 238,248 ; Kursell v. Timber Operators and Contractors Ltd. [1927] 1 KB 298 . In most of the cases the right to cut and remove timber was not created by a deed or formal instrument appropriate to the creation of a profit a prendre. Consequently, the right of the purchaser to enter upon the land to cut and remove timber has been classified as an equitable profit a prendre, something of the nature of a profit a prendre or as an irrevocable licence coupled with an interest. See Mills v. Stokman (1967) 116 CLR 61 .

Mills v. Stokman itself is an illuminating illustration. The owners of land, part held under Torrens title and part under common law title, entered into a written agreement under common seal with W. whereby for value they sold to him all the slate on the land and authorized him to enter upon the land for the purpose of cutting and removing the slate. The slate was contained in a pile of material that had previously been excavated. The Court of Appeal held that the slate was chattels because it had previously been severed from the land and because it was agreed to be severed from the land. This Court decided otherwise. First, it held that the pile had become physically integrated with the land and was part of it. Secondly, it held that, though the parties had incorrectly assumed that the slate was severed, they had not agreed that it would be severed. Accordingly, the agreement was not one for the sale of goods; it was, according to Barwick C.J. (with whom Taylor J. agreed), in equity "the grant of a profit a prendre" (1967) 116 CLR, at p 71, according to McTiernan J. "a valid equitable profit a prendre" (1967) 116 CLR, at p 75, according to Kitto J. "an interest in the nature of a profit a prendre, an irrevocable licence coupled with an interest" (1967) 116 CLR, at p 77 and according to Menzies J. who dissented in part, "a profit a prendre in equity or some similar property right" (1967) 116 CLR, at p 79. In reaching his conclusion Barwick C.J. thought it important that W. did not agree to remove the slates (1967) 116 CLR, at p 77. See also Stratford v. Mole and Lea (1941) 24 TC 20, esp at pp 31-33.

The contract contains several indications that the grower acquires an interest in land, even if it is not a profit a prendre in the strict sense. The company sells and the grower buys the trees, delivery to be made when required for planting (cl. 1). The company agrees to care for the trees until they reach maturity or become marketable as timber (cl. 3). The trees are referred to as "the trees of the Grower", evidently in the sense that he has, or is to have, proprietary rights in them (cl. 7). These provisions read with the entire contract indicate that the evident intention of the parties was that the grower was to have a continuing interest in the land which would culminate in his severance and removal of the trees. They do not support the view that the grower's only interest was a chattel interest arising on severance.

The principal argument against the grower having a profit a prendre is that it is an obligation on his part, not a right, under the contract to cut and remove the trees. All the instances given in the text books and legal dictionaries of profits a prendre are of "rights" to take something off the land of another. I have not been able to discover a case in which an obligation to take something off a person's land has been considered to be a profit a prendre. But I do not think that this negates the possibility that the grower's rights amount to an interest in the nature of a profit a prendre. Property in the trees evidently passes to him before planting and their growth in the ground is for his benefit. The fact that he has an obligation, rather than a right, to cut and remove them at maturity on notice from the company is not in the circumstances of this case inconsistent with his having an interest in land. As he has an interest in land and a licence to enter the land in order to take possession of the fruits of his interest, what he has is something in the nature of a profit a prendre, if not a profit a prendre in the strict sense.

If the grower has an interest in the nature of a profit a prendre then he has an interest in the assets of the scheme. Indeed, he has such an interest even if the scheme be confined to the growing of the trees on the plantation so that the activities of the grower in cutting the timber and removing it stand apart from the scheme because they are not carried out by the company.

If, contrary to my own view, the grower has no interest in the land, he nevertheless has an interest in the timber on severance and that, having regard to the wider ambit of the scheme which I prefer, is sufficient to satisfy the requirements of par. (a) of the statutory definition. Further, association of the word "interest" with the expression "right to participate" provides additional support for the view that it has a larger content than that of a proprietary interest.

Paragraph (b) of the Definition of "Interest"

Although, in the light of the conclusion I have reached in connexion with par. (a), it is unnecessary for me to examine this question, I do so because it was fully argued. The argument is that in order to constitute a "common enterprise" there must be a joint participation in all the elements and activities that constitute the enterprise. I do not agree. An enterprise may be described as common if it consists of two or more closely connected operations on the footing that one part is to be carried out by A and the other by B, each deriving a separate profit from what he does, even though there is no pooling or sharing of receipts of profits. It will be enough that the two operations constituting the enterprise contribute to the overall purpose that unites them. There is then an enterprise common to both participants and, accordingly, a common enterprise.

For this reason also the interest acquired by the grower falls within statutory definition.

Paragraph (c) of the Definition of "Interest"

27. I have no need to deal with this paragraph.

(2) Was there an Issue, Offer or Invitation to the Public?

It is common ground that if an issue, offer or invitation was made to the public there have been breaches of ss. 81, 82 and 83 of the Act.

The appellants submit that the words in question require that there be a making known to the public, by some form of public solicitation, e.g. by advertisement, circular or letter, that the relevant interest is available for subscription or purchase. They argue that the only sensible meaning for "issue" in the context is "proffer" and that, being part of the composite phrase "issue or offer" it adds very little, if anything, to "offer". The suggested justification for giving the word little or no meaning is that although one could let the public know that interests are available for subscription or purchase it is impossible to actually issue an "interest" within the meaning of s. 76 to "the public".

I do not accept that "issue" had such a limited meaning. It is clear that the word is sufficiently large in content to embrace the process by which the grower secures a binding contract. And I see no difficulty in saying that interests are issued to the public if, as will be seen to be the case, there are many instances in which an interest is allotted to an individual, the individual being selected or identified as the recipient of the interest by reference to his being a member of the public.

The statement of agreed facts shows that the agreements are in standard form. It is accepted that the documents are prepared by the appellants who distribute them to the brokers. Once a grower comes in contact with a broker by any of the methods disclosed in the statement of agreed facts it is unrealistic to say that an offer for subscription or purchase, or at least an invitation to subscribe for or purchase, an interest is not thereafter made to the grower. It is true that the standard form of agreement does not bind the company until "it is recorded in the books of the Company in Sydney as an Agreement binding on the Company" (cl. 17). Thus, as a matter of strict contract law, it is correct to say that the grower makes the "offer" which the company accepts and that the company's use of a standard form agreement only gives rise to an invitation to treat. However, it is my opinion that "offer" is not used in its strict contractual sense. See Attorney-General (NSW) v. Mutual Home Loans Fund of Australia Ltd. (1971) 2 NSWLR 162, at p 165 ; affirmed on appeal Mutual Home Loans Fund of Australia Ltd. v. Attorney-General (NSW) (1973) 130 CLR 103 , at pp 118, 120.

In any event the circumstances are sufficient to involve an invitation to subscribe for or purchase an interest even if, contrary to my own view, "offer" should be read in its strict contractual sense.

However, the real question is whether what has occurred gives rise to an issue, offer or invitation to the public. When we look to the three ways in which, according to the statement of facts, growers come into negotiation with the company and enter into contracts with it, the circumstances justify the conclusion that there was an issue and offer to the public or an invitation to the public. As Helsham C.J. in Eq. noted, the brokers were engaged on behalf of the company on a commission basis; each broker was allotted an area and his job was to introduce to the company prospective purchasers already signed up by him on a standard form of agreement for which he got a commission. Four thousand or so persons have already been signed up and accepted.

Although the company through the brokers negotiated with members of the public individually, the persons signed up were approached as members of the public. The facts do not suggest that the company or the brokers looked to a particular class of person as growers. The documents contain no hint of any restriction to a class or group of persons having some common characteristic or qualification, except that of possessing the money with which to buy the trees. It is worth recalling the remarks of Kitto J. in Lee v. Evans (1964) 112 CLR 276 , at p 287. His Honour there said:

"I see no reason to doubt that the statement of an invitation even to one person only may be seen, when considered in the light of all the circumstances, to be part of, even though only the first step in, the communication of the invitation to the public generally, so that if the lone hearer were to tell some stranger of it the stranger would be right in treating it as open to acceptance by him no less than by the hearer.... I think it is going too far to say that proof of an invitation given to a person as a member of the public is necessarily proof of an invitation to the public. If a person, wishing to obtain a loan, makes his request to a stranger whom he picks at random in the street, it remains, I think, a question of fact whether his invitation is to the public or to the selected individual only... (T)he distinction must not be overlooked between the case of an invitation which itself is open to acceptance by any member of the public who may be interested and the case of an invitation which itself is open to acceptance by a specific individual only but, if declined by him, is likely to be followed by similar invitations to other specific individuals in succession until an acceptor is found. The first of these is a case of an invitation to the public; the second, in my opinion, is not."

Accordingly there was in my opinion an issue and offer of an interest to the public for subscription or purchase and an invitation to the public to subscribe for or purchase an interest within the meaning of s. 76.

(3) Relief

Subject to one outstanding question, the consequence of all this is that the appeal must be dismissed. The outstanding question to which I briefly referred at the outset is the proposal in the judgment of Hutley J.A. that an injunction slightly different in form should be substituted for the declarations and injunction granted by Helsham C.J. in Eq. The parties now unite in submitting that a declaration alone is the appropriate relief in the light of conclusions I have reached. In the circumstances the relief granted should be limited to declarations in respect of Plantations Nos. 66A to 70A inclusive.

I would dismiss the appeal.