SEAS SAPFOR LTD v COMMR OF STAMPS (SA)

Judges:
Williams J
Matheson J
Olsson J

Court:
Full Court of the Supreme Court of South Australia

Judgment date: Judgment given on 27 June 1997

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Williams J

This is an appeal from the decision of a single Judge upon a case stated by the respondent Commissioner pursuant to s 24(4) and (5) of the Stamp Duties Act 1923.

1. The issue arising upon the legislation

The question at issue concerns the dutiability of a memorandum of transfer dated 6 May 1994 (in Real Property Act form) from W.A. Pines Pty Ltd to the appellant.

The consideration shown upon the face of the document is ``$1,750,000 being as to $516,000 for the land and $1,234,000 for the trees grown and cultivated thereon''.

The transfer was made pursuant to a contract dated 3 May 1994 and both documents were submitted for the opinion of the respondent Commissioner by the appellant. In its written application for opinion the appellant contended:

``The contract for sale provides for the sale as a going concern of broadacre land being Allotments 100-108 (both inclusive) of Section 11 Hundred of Symon containing 279ha or thereabouts together with the trees thereon being a silvicultural holding used wholly for primary production the trees being grown and destined to be harvested by felling, docking and delivery to mill. The trees have been grown from seedlings produced in a nursery which were transplanted into rows on the said land which had first been cleared of natural bush, ploughed, ripped, cleared of weeds and vermin, fertilised and fenced. The trees have been cultivated and pruned. Weedicides have been applied from time to time and vermin have been kept at bay. They are subject to frequent inspection constant care and fertilisation in accordance with the best husbandry utilised in the industry.

It is submitted that what is being sold falls within the ambit of Section 31a of the Stamp Duties Act and that the contract should be stamped at 20 cents (or whatever is the going rate for contracts for sale of land alone) and the transfer should be stamped at the value of $516,000 being the consideration paid for the land as opposed to the trees.

The site value of the land as recorded in the books of the District Council of Beachport is $516,000.''

The Stamp Duties Act was amended by the Act No. 31 of 1994 (with effect from 30 May 1994) but that amendment does not apply to this case. At the relevant time s 31A of the Act read as follows:

``Notwithstanding section 31 of this Act if -

• (a) a contract or agreement in writing provides for the sale as a going concern of a pastoral holding, farm, orchard or other land used wholly or mainly for primary production, together with stock, implements and other chattels held or used in connection therewith; and
• (b) the contract or agreement sets out separately the consideration payable for the land and the consideration payable for stock, implements or other chattels; and
• (c) the Commissioner certifies in writing on the contract or agreement that he is of opinion that the consideration specified as being payable for the land represents the value of that land,

then the contract or agreement in writing shall be chargeable with stamp duty as if it related solely to the land mentioned therein and not to the stock, implements and other chattles.''

(emphasis added).

As discussed below, s 31A must be considered alongside s 31 of which an extract as now relevant reads as follows:

``31(1) Any contract or agreement in writing for the sale of any estate or interest in any property (including goods, wares and merchandise not being goods, wares and merchandise agreed to be sold in the ordinary course of trade by a party whose

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business is or includes the sale of such goods, wares and merchandise) except -

• (a) property which cannot vest in the purchaser except upon registration of a conveyance; or
• ...

shall be charged with the same ad valorem duty as if it were an actual conveyance on sale of the estate or interest contracted or agreed to be sold.

31(2) Where duty has been duly paid on a contract or agreement in accordance with subsection (1), any conveyance made to the purchaser in pursuance of the contract or agreement shall not be chargeable with any duty, and the Commissioner, upon application and upon the production of the contract or agreement duly stamped, shall stamp the conveyance with a particular stamp denoting that it is duly stamped.''

(In accordance with s 60 of the Stamp Duties Act and the second schedule conveyances on sale are stampable ad valorem . As the sale of the land and the trees arise from an inter-related transaction, s 67(3) of the Act will require an aggregation of the consideration attributable to the instruments forming one transaction unless s 67(2)(b) applies; that subsection relevantly provides:

``67(2) This section does not apply to the following instruments:

• ...
• (b) a conveyance of stock, implements or other chattels in a case where section 31a applies;
• ...''

In
Tynte (1986) Ltd v Commissioner of Stamps (SA) 95 ATC 4571 at 4572-4573; (1995) 65 SASR 188 at 190 Perry J explains the operation of s 67. No specific issue now arises with respect to s 67(3) the operation of which will be excluded if s 31A applies.)

The respondent Commissioner formed the opinion that the transfer was subject to duty ad valorem upon the footing that the document evidenced a Conveyance on Sale; he rejected the contention of the appellant that by virtue of s 31A the portion of the consideration relating to the growing trees should be excluded from the assessment.

On 6 May 1994 the Commissioner assessed stamp duty (amounting to $72,580) upon the transfer and calculated by reference to the total consideration of $1,750,000. (The contract was not assessed as being dutiable).

Being dissatisfied with the Commissioner's assessment, the appellant objected in accordance with s 24(1)(a) of the Act; upon this assessment being confirmed by the Treasurer, the appellant appealed to the Supreme Court pursuant to s 24(3). The appeal came before Lander J who dismissed the appeal; from that decision the appellant has brought the present appeal to the Full Court.

2. The agreed facts

The parties agreed a set of facts which they treated as supplementing the material in the case stated. The agreed facts are as follows:

``1. The appellant carries on an afforestation business which involves growing pinus radiata trees for sale on land owned by it and principally located in the south east of South Australia.

2. On 3 May 1995, in the course of its business, the appellant entered into a contract with WA Pines Pty Ltd (In Liquidation) (`the vendor') for the sale as a going concern of certain broad acre land being Allotments 100-108 (inclusive) of Section 11, Hundred of Symon (`the contract of sale').

3. The contract of sale related to a plantation of approximately 279 hectares of pinus radiata. The trees are grown commercially, the ultimate commercial aim being to fell the trees and to deal with them thereafter with a view to profit. It is accepted by the Commissioner that the land was used wholly for primary production.

4. The contract [ is included as part] of the case stated. The site value of the land without the trees is recorded in the books of the District Council of Beachport as $516,000.

5. The vendor had no implements held or used in connection with the land.

6. A Memorandum of Transfer of the land (`the Memorandum of Transfer') was executed on 6 May 1994.

7. The trees were planted on the land about 25 years ago.

8. Prior to planting of the trees the land was first cleared of natural scrub, herbage and

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vermin and it was then line ripped for planting, fertilised and fenced. The trees were transplanted upon the land as seedlings in rows at a rate in excess of 1,700 seedlings per hectare.

9. The process of harvesting timber of the age of the trees upon the said land progresses more or less on an ongoing basis until clear felling is completed.

10. At the time of the purchase of the land and the trees by the appellant, the plantation had been subjected to a first thinning and a second thinning had commenced. The second thinning is progressing and will continue for 18 months or more. The second thinning will probably shortly be followed by the third thinning, which in turn will shortly be followed by the clear felling in approximately 5 years time. There is also a constant need to extract windthrown and disease and insect affected trees.

11. The purpose of thinning is:

11.1 To supply timber for pulp, preservation and wood chip markets with some saw log for milling;

11.2 To allow room for the remaining trees to grow further;

11.3 To remove inferior quality trees;

11.4 To provide increased accessibility into the forest for ongoing forestry operations including future thinning and felling.

12. Some of the trees have also been pruned and the plantation appears to have been fertilised from time to time and in the ordinary course may be fertilised again before clear felling.

13. The trees were fit for felling at the time the land was acquired by the appellant. However, it was considered that the project would be more profitable if some of the trees were allowed to continue to grow until aged approximately 30 years with further thinning in the meantime.

14. The appellant is the holding company in a vertically integrated group structure known as the Auspine Group. The Auspine Group is a forestry resource group specialising in radiata pines. Radiata pines from renewable plantations represents one of the most valued and environmentally sound of the world's resources. The Auspine Group has given priority to developing its own renewable radiata pine plantation base. The acquisition of the land and plantation the subject of this appeal was made in accordance with that priority.

15. The appellant maintains an asset register which records its assets in a number of categories including land, plant and machinery, buildings and roads. Consistent with industry practice, standing timber (including trees) is separately categorised.

Standing timber (including the trees) is included in the appellant's balance sheet as a non-current asset under the heading `Property, Plant and Equipment'.''

The contract of sale and purchase (above referred to in par 4) is in a standard form approved by the Law Society of South Australia for the use of its members. The land is identified therein by reference to a scheduled item (S3) and the accompanying chattels by reference to another scheduled item (S5); the schedule, with reference to item S5 reads as follows:

``Chattels included in Sale:

The whole of the stock being the trees remaining in the plantation of pinus radiata sown, cultivated, growing and maintained on the said Land by way of primary production and hold in connection with that land. The parties acknowledge that there are no implements or other chattels held or used by the Vendor in connection therewith.''

The purchase price is specified in a scheduled item (s 9) which directs that the purchase price shall be apportioned in accordance with a special condition (see below). Improvements fixtures and fittings are expressed to be the subject of scheduled item S4 but the schedule merely states that these items are ``as per clause 2'' [ of the contract].

Relevant extracts from the contract for sale and purchase dated 3 May 1994 are as follows:

Subject Land

1. The Vendor agrees to sell and the Purchaser agrees to purchase from the Vendor the land described in Item S3 and subject to the following provisions, the property sold is to be held by the purchaser as stated in Item S3.

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Rights and property included

2. The land is sold together with: -

• (a) any easements, rights, privileges and appurtenances referred to in the Certificate or other muniment of title for the said land;
• (b) all improvements, fixtures and fittings thereon or thereto; and
• (c) without limiting the generality of the foregoing, the property referred to in Item S4,

(all of which, including the land described in Item S3, are hereinafter called ``the said Land''.

Chattels Sold

3. The Vendor also agrees to sell and the Purchaser agrees to purchase any chattels referred in Item S5 (all of which the said Land, and the said chattels are hereinafter called ``the said Property'').

Purchase Price

5. The purchase price for the said Property shall be as stated in Item S9 and is appropriated as shown therein.

Settlement

7(a) Settlement shall take place on the date and at the place (if any) indicated in Item S13.

(b) The Purchaser shall not less than 7 days before settlement date (or within such shorter period as the Vendor may allow) deliver to the Vendor or his agent, for execution by the Vendor, a memorandum of transfer of the said Land and the assignment or assignments required by the Purchaser in relation to any other of the said Property.

(c) Failing due delivery of any such memorandum of transfer or assignment, the Vendor may at any time thereafter prepare the same at the expense in all things of the Purchaser.

...

Possession

8. Vacant possession of the said Land and delivery of the remainder of the said Property shall be given and taken on settlement (or at such other time as the Vendor and the Purchaser may mutually agree) but subject to the tenancies, licences and other interests referred to in Item S8.

Special Conditions

[ The contract contained a number of special conditions but only the first now relevant and reads as follows:]

• ``1. The Vendor and the Purchaser mutually acknowledge and agree that:
  • 1.1 the trees growing upon the said Land are included in the property hereby sold pursuant to this Agreement; and
  • 1.2 the purchase price payable hereunder has been determined, and shall be apportioned, on the following basis: -

1.2.1  the land hereby sold    $  516,000

1.2.2  the aforesaid trees     $1,234,000

                               ----------

                               $1,750,000''

                               ==========
      

3. The arguments of the appellant

In seeking to take advantage of the benevolent provisions of s 31A, it is implicit in the appellant's argument that the pine trees comprise property which may vest in the purchaser without the necessity of the registration of a conveyance (see s 31(1)(a) and (2)). Whilst s 31(1) (if applicable and standing alone) will attract ad valorem duty, s 31A (if applicable upon the appellant's argument) operates so as to over-ride s 31 and exempt the contract of sale from stamp duty in a limited respect - namely with respect to the value of the trees insofar as they are ``chattels''.

In developing its argument upon this appeal the appellant has argued two principal points:

• (a) that the growing pines should be regarded as fructus industriales (see s 4 below).
• or alternatively
• (b) that by virtue of the state of cultivation of the trees and having regard to the harvesting process (which had already commenced), the trees should be regarded as being in a state of readiness for felling and treated (in terms of the transfer) as items of commerce separate and apart from the land upon which the trees are growing; the manner in which the trees have been separately dealt with in the memorandum of transfer (and supporting contract of sale) are crucial to the appellant's case. (see s 5 belong).

Relying upon these alternative contentions the appellant argues that the trees should be regarded in law as chattels severed from the

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land and therefore falling within the phrase ``stock implements and other chattels'' as used in s 31A(a). It is not in dispute between the parties that if the trees are ``chattels'' within the meaning of the subsection then the facts otherwise established by the appellant are sufficient to enable it to obtain the advantage of s 31A.

The word ``chattels'' is not defined in the Act for the purposes of s 31A. Accordingly the appellant seeks to apply general common law principles in its analysis of this walk in walk out sale of land and maturing pine trees.

4. Fructus industriales

Where a purchaser of land agrees to take the crops (then growing) together with the land, it is a question of construction whether the contract is entire (so that the crops are part of the land) or severable - in which case the crops are sold as goods (see Benjamin on Sale of Goods 3rd ed at par 93). However this issue can only arise with respect to fructus industriales and not in the case of fructus naturales . Fructus industriales constitute an exception to the general rule that things growing on the land are part of the land and only become chattels upon actual severance (see
Re Ainslie (1885) 30 ChD 485 and
Australian Softwood Forest v AG (NSW) (1981) 148 CLR 121 at 130 per Mason J).

The possibility that growth on the land might be severed from the land upon the sale of land and crop together within the one contract is canvassed in
Pasley v Commissioner of Inland Revenue (NZ) (1957) 11 ATD 485 ; (1957) 7 AITR 292 (in the Supreme Court of New Zealand). Where there is an out and out sale of a farm from an absolute owner to a purchaser then the crops in the ground pass with the land ``in the ordinary way''. However, the manner of treatment of the growing crops in the contract may indicate that severance from the land was intended.
Saunders v Pilcher (1949) 2 AER 1097 at 1105 contains examples of situations where severance of fructus industriales from the land may occur; typically the purchaser may have bid separately for the land and its produce or the purchaser of the land may have agreed to take and pay for a crop at valuation (upon a deferred basis) when the crop has ripened.

In the present case, although a separate consideration has been fixed for the growing trees and although the contract treats the trees as chattels forming part of the contract, I doubt whether there has been sufficient to effect a severance from the land. This is not a case in which the purchaser's entitlement to take the crop has been disengaged from the concurrent acquisition of the land. The contract deals with both land and growing trees, stipulates for one overall settlement upon the transaction and provides that possession generally will be given at that time. It appears to me that the Real Proper Act transfer will carry with it the growing crops.

I will continue to follow through the essence of the appellant's argument that the pines are fructus industriales but on the face of the present contract I remain to be persuaded that (in manner discussed in Saunders v Pilcher above) the parties have severed the trees from the land.

The appellant claims that as the trees themselves are being farmed as timber they should be distinguished from trees (such as cherry trees) from which a crop is taken (so as to leave the standing trees intact). The appellant argues that there is sufficient flexibility in the law to enable a right to maturing pine trees to be characterised as a right to emblements.

Fructus industriales are corn or other annual produce of the earth produced not spontaneously but by labour and industry; they have been described (see Benjamin on Sale (8th ed) at 175-176) as the fruits or crops produced in the year, by the labour of the year in sowing and reaping, planting and gathering - for example corn and potatoes). Whilst growing in the ground this class of produce is not treated as part of the land but has the character of a personal chattel which passes to the executor and not to the heir (see
English Hop Growers v Dering (1928) 2 KB 74 at 179 per Scrutton LJ).

Fructus industriales are to be distinguished from fructus naturales - being the natural growth of the soil such as grass, timber and fruit on trees which are regarded at common law as being part of the soil (see Benjamin on Sale of Goods (3rd ed) at par 91).

The cases tend to treat emblements and fructus industrales as interchangeable expressions. Technically however the right to emblements is a right which the law gives to the tenant of an estate of uncertain duration to take crop (which is growing at the determination of the tenant's estate) of those vegetables produced by agricultural labour which

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ordinarily yield a present annual profit; the right to emblements also includes the right of access to the property for the purpose of taking possession ( Benjamin - Sale of Goods (3rd ed) at par 92). The expression applies also to ``certain vegetable products of the earth which though annexed to and growing upon the land at the time of the occupier's death are considered by the law as chattels''...

``When the occupier of the land, whether he be the owner of the inheritance or of an estate determining with his own life, has sown or planted the soil with the intention of raising a crop of such a nature and dies before harvest time, the law gives to his personal representatives the profits of the crop, emblavence de bled , or emblements, to compensate for the labour and expense of tilling, manuring and sowing the land. The rule is established as well for the encouragement of husbandry and the public benefit, as on the consideration in the case of a tenant for life, that the estate is determined by act of God, and that the maxim of law is, actus Dei nemini facit injuriam .''

``The doctrine of emblements extends not only to corn and grain of all kinds, but to every thing of an artificial and annual profit, that is produced by labour and manurance, such as hemp, flax, saffron and the like, melons of all kinds, also hops, though they spring from old roots, because they are annually manured, and require cultivation, and potatoes:...''

see Williams on Executors (12th ed) at 448 and 451.

There is an intermediate class of produce which do not produce a crop within the year. In such a case (where no crop is produced for several years after planting or affording a succession of crops before being exhausted) any crop after the first year is regarded as fructus naturales . The production of hops is subject to the peculiar nature of its growth from ancient roots and its style of cultivation; in such a case, the year runs from the time at which the additional expense is incurred which is necessary to make the hops grow (see
Graves v Weld (1833) 39 Rev Rep 419 at 423 and 430 ).

This intermediate class will include madder, clover, teasels - and in Australia, pineapples (see Stonham on Vendor and Purchaser at 44 footnote 1). However, in all these cases there is an element of annual or other periodic profit to be immediately derived as the fruit of labour. Williams on Executors 12th ed at 452 states the rule as follows:

``But the rule does not apply to fruit grooving on trees; nor to the planting of trees; for the general rule is, quicquid plantatur solo , solo cedit ; and when a man plants a tree, he cannot be presumed to plant it in contemplation of any present profit, but merely with a prospect of its being useful to him in future, and to future successions of tenants. Therefore, if a man sow the land with acorns, or plant young fruit trees, or oak, elm, ash, or other trees, these cannot be comprehended under emblements. The case of trees, shrubs, and other produce of their grounds planted by gardeners and nurserymen, with an express view to sale, may be mentioned as an exception; for they are removable by them or their personal representatives, as emblements are.''

The principles associated with the identification of fructus industriales are long standing; growing pines are to be characterised as fructus naturales .

5. Contractual severance from the land

The appellant also argues that by reason of the contractual treatment of the pine trees that they are to be regarded as having been severed from the land.

In
Marshall v Green (1875) 1 CPD 35 the plaintiff land owner made an oral contract for the immediate sale to the defendant of standing timber which the defendant was to cut down and remove.

Lord Coleridge at 39-40 said:

``Planted trees cannot in strictness be said to be produced spontaneously, yet the labour employed in their planting bears so small a proportion to their natural growth, that they cannot be considered as fructus industriales, but treating them as not being fructus industriales, the proposition is that where the thing sold is to derive no benefit from the land, and is to be taken away immediately, the contract is not for an interest in land. Here the contract was that the trees should be got away as soon as possible, and they were almost immediately cut down. Apart from any decisions on the subject, and as a matter of common sense, it would seem obvious that a sale of twenty-two trees to be

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taken away immediately was not a sale of an interest in land, but merely of so much timber.''

In Marshall v Green (unlike the present case) the purchaser of the timber was not also the purchaser of the land. In Marshall v Green the landowner merely agreed to sell some standing timber. In my opinion that distinction is sufficient to dispose of the point raised by the appellant.

The statement of principle in Marshall v Green was an expression of approval of Sir Edward Vaughan Williams' extensive editorial comment prepared as a footnote to Duppa v Mayo in 1 Saunders Reports (6th ed - 1845). In a discussion from p 277b to 277d the commentator reviews the circumstances in which growth upon the land will be treated as a chattel or alternatively as part of the realty. At [ 94 ATC p 4558] p 277c the author says:

``The principle of these decisions appears to be this, that wherever at the time of the contract it is contemplated that the purchaser should derive a benefit from the further growth of the thing sold from further vegetation and from the nutriment to be afforded by the land, the contract is to be considered as for an interest in land; but where the process of vegetation is over, or the parties agree that the thing sold shall be immediately withdrawn from the land, the land is to be considered as a mere warehouse of the thing sold, and the contract is for goods.''

In
Ashgrove Pty Ltd & Ors v DFC of T 94 ATC 4549 at 4558; (1994) 28 ATR 512 at 525-526 Hill J after noting that this passage formed the basis for decision in Marshall v Green then added:

``Marshall v Green was in many ways a simple case, such that it was said to seem `obvious' that a sale of a small number of trees to be taken away immediately involved not the sale of an interest in land but merely the sale of a particular quantity of timber. But even the judgment itself shows the difficulty which arises if the test is to be taken to be whether the trees themselves derive benefit from the land: see at 38-9. One thing, however, that the case does demonstrate is that, at general law, there is a real dichotomy between a contract (which is for the sale of goods being timber) conferring a mere licence to enter the land and a contract which involves the sale of an interest in land.

The test in Marshall v Green was not enthusiastically greeted by Chitty J in
Lavery v Pursell (1888) 39 Ch D 508 , where a contract for the sale of the building materials from a house to be taken down and removed within two months (whereupon the right of access ceased and the materials were forfeited), was held to be not a contract for the sale of goods but rather a contract for the sale of an interest in land to which the formalities in s 4 of the Statute of Frauds applied. His Lordship expressed the view (at 517) that Marshall v Green :

`... turned upon this, that they considered that as the trees were to be cut down as soon as possible, and were almost immediately cut down, the thing sold was a chattel.'

His Lordship further expressed the view that Marshall v Green might be open to further consideration.''

Marshall v Green was a case in which it was in the contemplation of both parties (as appeared upon the face of the contract) that the purchaser was to cut and take possession of the timber forthwith. In the present case the intention of the purchaser (established extrinsically by the agreed facts) is to harvest the trees over a period of time. However, no common intention of the parties is discernible upon the face of the contract. The significance of that fact need not be pursued, bearing in mind that (unlike Marshall v Green ) the appellant as purchaser of the trees is also the purchaser of the land.

I propose that the appeal be dismissed.