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: MURPHY J)

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

Court:

Judges: Gibbs CJ
Stephen J
Mason J

Murphy JWilson J

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

Canberra

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Judgment by:
MURPHY J

One of the most widespread and successful of the species of fraud known in Australia and elsewhere as "the investment racket" is the forest or plantation variety. In a simple version the investor victim is induced to pay either outright or by deposit plus instalments for an area of land as part of a scheme in which trees will be planted and harvested on this and other investors' land. The investor expects that when the trees are fully grown he will receive a handsome reward from the produce. The schemes are generally designed so that all the investors will ever receive are the pieces of paper constituting the agreements.

Legislatures here and overseas have made increasingly stringent "blue sky" laws to protect prospective investors in such schemes (see Securities and Exchange Commission v. W. J. Howey Co. (1946) 328 US 293 (90 Law Ed 1244) ; Radiata Forestry Development Co. Pty. Ltd. v. Evans (1977) 3 ACLR 82; (1978) ACLC 29, 663 ). In response, promoters design increasingly more sophisticated schemes in attempts to circumvent the laws.

Division 5 of Pt IV of the Companies Act, 1961 (NSW), as amended, prohibits a company from making issues or offers to the public for subscription or purchase or from inviting the public to subscribe for or purchase any interest, without first fulfilling certain statutory requirements designed to protect the public. These protective provisions apply whether the scheme is sound, foolish or fraudulent.

The legislature has defined "interest" extremely widely but to avoid any unintended effect has included specific exemptions and made provision for other exemptions by regulation. In the present case, the investor "grower" acquires an "interest" as defined by the Act and the scheme is caught by the provisions of Div. 5. This case is not concerned with the soundness or otherwise of the scheme promoted by the appellants, and on the assumption that the scheme is otherwise bona fide, the issues or offers are nevertheless a contravention of the Act.

I agree with Wilson J.'s conclusions and generally with his reasons. The Supreme Court granted an injunction against further issues or offers by the defendants, but refused declarations that the agreements are caught by the legislation. Both forms of relief are appropriate. The injunction is appropriate because the respondent asserts its right to issue the agreements without conforming to the requirements of the Companies Act 1961 (NSW), Div. 5. It has already procured signatures and acceptances from more than 4,000 persons. This represents more than $200,000 in deposits and promises to pay instalments of well over a million dollars. Presumably all those who have been party to offences against the Companies Act in relation to the issues are liable to criminal proceedings at least with the consent of the Minister (see s. 381). In these circumstances, and because the respondent did not press in this Court for the injunction, I agree that the relief be confined to appropriate declarations. The appeal should be dismissed.