Crocombe v Pine Forests of Australia Pty Ltd

DECISION : Order declaring scheme is unregistered managed investment scheme. Order for winding up to be implemented by appointing trustees for sale under the Conveyancing Act.

CATCHWORDS : CORPORATIONS [88]- Other interests- Tree plantation- Whether managed investment scheme. LANDLORD & TENANT [67]- Waste- Pine plantation- Whether occupier can fell pinus radiata. MORTGAGE [36]- Rights of mortgagor in possession- Pine plantation- Right to cut trees. REAL PROPERTY [314]- Partition or sale- Land held as to 500 1/500th undivided shares- Some mortgaged- Effect of order appointing trustees for sale.

Conveyancing Act 1919 ss 66D, 66G, 66H LEGISLATION CITED : Corporations Act 2001 (Cth) ss 9, 601ED, 601EE

ASIC v Atlantic 3 Financial (Aust) Pty Ltd (2003) 47 ACSR 52 ASIC v Commercial Nominees of Australia Ltd (2002) 42 ACSR 240 ASIC v Enterprise Solutions 2000 Pty Ltd (2000) 35 ACSR 620 ASIC v Takaran Pty Ltd (2002) 43 ACSR 46 ASIC v Young (2003) 173 FLR 441 Attorney General v Sandwich (Earl) [1922] 2 KB 500 Australian Softwood Forest Pty Ltd v Attorney General (NSW) (1981) 148 CLR 121 Chapman v Strawbridge [1910] SALR 118 Clowes v Federal Commissioner of Taxation (1954) 91 CLR 209 Dale v Hamilton (1853) 10 Hare Appendix 1 vii; 68 ER 1116 CASES CITED : Dixon v Pyner (1850) 7 Hare 331; 68 ER 135 Honywood v Honywood (1874) LR 18 Eq 306 Murray v Geoffroy (1918) 18 SR (NSW) 259 Perpetual Trustee Co Ltd v Commissioner of Stamp Duties (1970) 72 SR (NSW) 453 R v Hood (1988) 54 NTR 1 Re China Steamship & Labuan Coal Co (Drummond's case) (1869) LR 4 Ch App 772 Re Hart [1954] SASR 1 Reg v Everall (1987) 89 FLR 116 Secretan v Hart [1969] 1 WLR 1599 Toteff v Antonas (1952) 87 CLR 647 Wheeler v van Wart (1838) 9 Sim 193; 59 ER 332

John Gordon Crocombe (P1) Andrea Judith Crocombe (P2) Pine Forests of Australia Pty Limited (D1) PARTIES : Pacific Farm Management Pty Limited (D2) Transgrowth Association (Aust) Ltd (In Liquidation) (D3) Ausforest Limited (Receivers & Managers Appointed) (In Liquidation) (D4)

J T Johnson (P) COUNSEL : L G Foster SC (D1) R G McHugh (Receivers of D4)

Maurice Blackburn Cashman (P) SOLICITORS : Gilbert + Tobin (D1) Blake Dawson Waldron (Receivers of D4)

IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION CORPORATIONS LIST

2200/04 - CROCOMBE v PINE FORESTS OF AUSTRALIA PTY LTD JUDGMENT 1 HIS HONOUR: On 2 February 1983 and again on 29 March 1985, the plaintiffs entered into contracts for the sale of land with the first defendant. 2 The contracts are both in the 1982 edition of the standard form. The purchase price in each is $2,990. The land being sold is one five-hundredth share as tenant-in-common in what in due course turned out to be DP 264564. The land is described as being situate at Hai Welyki in the Shire of Oberon. The contracts are virtually identical save for the terms of payment. The second contract was an instalment contract, but in due course was completed. 3 In due course two certificates of title issued to the plaintiffs being Volume 8582 Folio 195 and Volume 8583 Folio 37. 4 Clause 33 of the contracts was as follows: "33. TENANCIES IN COMMON

The purchaser acknowledges purchasing the property herein described as tenant-in-common of an undivided share of Lot 3 and in respect thereof shall for itself its heirs successors and assigns be bound by the following: (i) the purchaser appoints the vendor as manager of the land until completion or such time as the tenants-in-common meeting together shall appoint a committee of management or a manager. (ii) upon receipt of an account from the manager or from any council, shire or other statutory or local government body (whether before, on or after completion) the purchaser shall effect payment of a pro-rata share in the account. (iii) unless and until separate assessments of rates and taxes are issued in respect of the said property by the relevant authorities all necessary adjustments between the parties (whether before or after completion) shall be made on the basis of the said property shall be liable for a pro-rata share (according to the proportion of ownership as a tenant-in-common) of any such rates and taxes (other than land tax) levied or assessed against the whole of the land comprised in Certificate of Title Volume 8084 Folio 34 and Volume 10733 Folio 166." 5 As I have said, the contracts were completed but although at various stages some person purported to be the manager of the land, there was never any meeting of the tenants-in-common together to appoint a committee of management or a manager. 6 The plaintiffs appear to have entered into the contracts as a result of the activities of a salesman who provided them with brochures. The brochures are in evidence. They contain a lot of puffery and pretty pictures of forests against an attractive skyline, happy plantation owners gather around a camp fire etc, as well as statements from people who indicate they have qualifications in the forestry industry extolling the virtue of growing pinus radiata, milling it and marketing it. The brochures also pointed out the taxation advantages in investing in pine forests, an advantage that would be reaped wholly in the year of payment. 7 The plaintiffs now say that they have invested in an unregistered managed investment scheme and are entitled to an order that the scheme be wound up under s 601EE of the Corporations Act 2001 and for a liquidator to administer the scheme, or at least a receiver to be appointed. 8 The evidence shows that a number of other so-called investors in the land would like the same thing to happen but they have not been made parties to the proceedings: they have merely filed affidavits which seem to suggest that they were involved in a similar way to the plaintiffs. 9 The first defendant originally was the vendor but it has long since stepped out of involvement save that by a rather convoluted process it still holds approximately 20% of the undivided shares of Lot 3 at Hai Welyki. 10 I need not worry about the second and third defendants for present purposes. The fourth defendant, Ausforest Ltd ("Ausforest"), is interested either legally or beneficially as holder of the majority of the undivided shares in the land and appears to have, since 1985, managed, or purported to manage, forestry activities upon the land. 11 Ausforest has sought to acquire "investors" interests in the land in exchange for shares in Ausforest, but has not been successful in this endeavour. However, from its material, it would appear that "investors" may consist of three categories of people, category 1 being people in the plight of the plaintiffs who have title to undivided shares; category 2 being persons under instalment contracts yet to be completed; and category 3 being persons with other interests in the land, whatever that may mean. 12 It would also seem quite clear that Lot 3 Hai Welyki is only one of 12 adjoining plantations in the Oberon/Jenolan area. There is some suggestion in the evidence that those who are managing the plantations, manage them all as one whole. 13 The timber being grown on the subject plantation and adjoining plantations is pinus radiata. According to the brochures, radiata pine or pinus radiata originates from California. The tree has vigour, low branching angle, apical dominance. It grows with minimum maintenance and produces a wood which is milled and sold for structural building purposes amongst other things. 14 The fourth defendant, Ausforest, has had receivers and managers appointed to it. The receivers and managers were put in by Arrow Custodians Pty Ltd ("Arrow"). Arrow has a registered mortgage over the title to a large number of lots which are registered in Ausforest's name and also has an equitable charge over other lots. Paul Andrew Billingham and Trevor Mark Pogroske of Grant Thornton were appointed jointly and severally receivers and managers on 3 September 2004. They are receivers and managers of the property, a word which was defined in their appointment as the property charged under clause 3.1 of the relevant charge, which if one goes from cross reference to cross reference, means all the present and future undertakings, assets and rights of Ausforest. The charge was both fixed with respect to any title document and floating over everything else. 15 The fourth defendant filed a cross-claim seeking the appointment of trustees for sale of Lot 3 under s 66G of the Conveyancing Act 1919. This is also a back-up claim made by the plaintiffs. 16 The hearing came on before me on 18 February 2005. On that occasion, Mr J T Johnson of counsel appeared for the plaintiffs, Mr L G Foster SC for the first defendant, and Mr R G McHugh for the receivers of the fourth defendant. 17 It was obvious right from the beginning that Lot 3 had to be sold and I endeavoured to broker the situation in which trustees for sale would be appointed under s 66G and the consequences could be argued about later. This was not satisfactory to the plaintiffs or the first defendant. The plaintiffs said that they wanted justice and were entitled to have their claim heard and they wanted a receiver of the scheme and it was iniquitous that an unregistered managed investment scheme should be allowed to continue flaunting the provisions of the Corporations Act. That was all very highfalutin language especially remembering that the plaintiffs had invested a total of under $6,000 in what must obviously have been a risky investment from which they derived immediate taxation advantages. 18 The plaintiffs must be disappointed that so far they have only received $243 by way of income over the last 20 years and are justified in feeling that there has been misconduct in the operation of the plantation. They are also peeved that ASIC would not assist them in any way in seeking "justice". I pointed out that this sort of litigation is fairly technical, that there were possible costs penalties if they were unable to prove their case. It would seem that in some quarters the present action is thought of as a class action; it is not, though I do not know what arrangements have been made between the "investors" inter se, but at first blush, at least if the proceedings fail, then the plaintiffs would have to pay the costs. 19 As to justice, it is of course the staple commodity dispensed by this Court. However, as it has been pointed out ASIC declined to take action and it is fairly clear that the reason for this was that taking action was pouring good money after bad. The main defect of litigation in the 20th century was that it tolerated complexity and a proliferation of wasteful satellite litigation and created high and unpredictable litigation costs. 21st century litigation involves dealing with cases in ways which are proportionate to the importance of the case, the complexity of the issues and the achievement of practical goals. All that litigants are entitled to expect is a reasonable allocation of resources needed to achieve a reasonable protection and enforcement of their rights; see Zuckerman on Civil Procedure (Lexis Nexis, UK, 2003) Chapter 1. Although those remarks are made in connection with the English Civil Procedure Rules, a great part of the philosophy is applicable to Australia. 20 Accordingly, when the Court can see that there are several acres of a pine plantation which has been almost completely felled on steeply undulating land near Oberon and virtually no other assets, so that even if the land is sold there will be very little money available to the plaintiffs or their co-investors, it endeavours not to decide the whole case but to work out a short practical solution. The solution that the land be sold by trustees for sale and then the net proceeds held pending further determination of the Court in my view had a lot to commend it. 21 However, as the rules are presently structured, if plaintiffs demand that the Court hear the case in full to get "justice", then at the plaintiffs' risk as to costs, the Court has little alternative but to accede to the request. Mr Foster SC joined in the request saying that there were two reasons why it was preferable to have a receiver rather than a trustee for sale. The first is that the land might have to be managed before sale. He suggested that there were still pockets of unfelled timber and someone would have to make a decision as to whether these would be harvested or whether the land sold as is. Secondly, there were a large number of stumps on the ground where trees had been felled and a decision would have to be made as to whether these should be removed or whether the land should be sold after there was fresh seeding or otherwise. 22 These arguments of Mr Foster seem to me to provide a good reason for continuing. Mr McHugh said that there was no power in the mortgagor to manage the land because the mortgagee had full control over what timber could be felled and how the land was to be managed. 23 At this stage I thought that there was really no alternative but to hear the case, and that I did. I read 14 affidavits filed on behalf of the plaintiffs, three on behalf of the first defendant, and one on behalf of the fourth defendant. I heard Mr Billingham being cross-examined by Mr Johnson for the plaintiffs and I took in 11 exhibits occupying three lever arch files and another pile of assorted documents approximately 15 centimetres high. The latter was not tabulated or indexed and I have had to absorb time that should not have been used in finding my way through them for the purpose of writing this judgment. 24 I often suspect that solicitors in commercial litigation find it more cost effective just to bundle up every conceivably relevant piece of paper and place them in a tender bundle. Sometimes they provide an extra copy as well. 25 If my suspicion is correct, one can understand the lack of pagination and indexing. 26 The judges expect that such bundles be prepared with discrimination by a skilled person. Only relevant documents should be included and the bundle must be properly paginated and indexed, with divider tabs. 27 I must confess I am both amazed and somewhat distressed that a case which a realist would consider that the probabilities were that there was no money or other pot of gold at the end of the rainbow would see so much paper being produced, a large bulk of which is only of peripheral value in the case. 28 Having dealt with the preliminary matters and the facts I must now focus on the issues that arise for decision. These appear to me to be as follows:

(1) Is there a managed investment scheme under the current legislation?

(2) What is the effect, if any, of the fact that the plaintiffs' investments were made in 1983/1985?

(3) What is the right of a person other than Arrow to manage the land?

(4) Should a receiver or rather trustees for sale be appointed?

I will deal with these matters in turn. 29 (1) Section 601ED(1) of the Corporations Act 2001 (Cth) provides that "subject to sub-section (2) a managed investment scheme must be registered under s 601EB" if it has certain characteristics which apply in the instant case. There has been no registration in the current case. Section 601EE is then as follows: "(1) If a person operates a managed investment scheme in contravention of sub-section 601ED(5) the following may apply to the court to have the scheme wound up: (a) ASIC; (b) the person operating the scheme; (c) a member of the scheme. (2) The court may make any orders it considers appropriate for the winding up of the scheme." 30 "Managed investment scheme" is defined in s 9 as meaning: "(a) a scheme that has the following features: (i) people contribute money or money's worth as consideration to acquire rights (interests) to benefits produced by the scheme (whether the rights are actual, prospective or contingent and whether they are enforceable or not); (ii) any of the contributions are to be pooled, or used in a common enterprise, to produce financial benefits, or benefits consisting of rights or interests in property, for the people (the members) who hold interests in the scheme (whether as contributors to the scheme or as people who have acquired interests from holders); (iii) the members do not have day to day control over the operation of the scheme (whether or not they have the right to be consulted or give directions) … " 31 Mr McHugh puts that the present situation does not fall within (a)(i). People did not contribute money or money's worth as consideration to acquire rights. They paid their money to acquire land and then the land may have been used but there is little evidence as to how in fact Ausforest took its interest in the land or how all the registered proprietors of the one five hundredth shares as tenants-in-common agreed together to contribute and unless the plaintiffs can show that 100% of all the registered proprietors and mortgagees were in on the same basis, the definition is just not satisfied. 32 Mr Foster says in reply that the Court must infer that all of them took on the same terms. The money was paid to the then manager of the scheme and land was money's worth which was contributed. Mr Johnson also says that contributing the interest in land was the contribution in money's worth. 33 Needless to say, this is not the first case in which a court has had to examine the definition of managed investment scheme. 34 In ASIC v Takaran Pty Ltd (2002) 43 ACSR 46 at 49, Barrett J said: "The Act makes no attempt to define 'scheme' for these purposes. It does, however, refer to the 'features' of a 'scheme' that make it a 'managed investment scheme'. Those 'features' are first, the act of contribution of money or money's worth by several persons; second, the accruing for those persons in return ('as consideration') of certain rights to benefits produced by the scheme; third, pooling of the contributions or other use of them in the common enterprise; fourth, an objective or expectation of accrual of benefits to persons for the time being holding the rights generated by the contributions; and, fifth, absence of day-to-day control of the operation of the scheme by those persons. It is clear from the characteristics that a 'scheme' must be capable of being identified within certain boundaries. Such identification is necessary to decide whether it has the characteristics which bring it within the statutory definitions."

Some cases under the present Act have picked up the definition of scheme employed by Mason J (with whom the other Justices agreed) in Australian Softwood Forest Pty Ltd v Attorney General (NSW) (1981) 148 CLR 121 at 129, that "all that the word 'scheme' requires is that there should be 'some programme or plan of action' " (the quote is from Clowes v Federal Commissioner of Taxation (1954) 91 CLR 209 at 225). 35 Returning to Mr McHugh's argument, the vital matter to consider is whether the contribution of land can be considered to be money or money's worth. It is not money. The real question is whether it is money's worth? 36 The expression "money or money's worth" is a common one used in gift and death duty legislation. In a death duty case Attorney General v Sandwich (Earl) [1922] 2 KB 500 at 517, Lord Sterndale MR said: "I am not sure what is the accurate definition of money's worth. It was an expression originally introduced to exclude marriage as a consideration, and the learned counsel for the appellant defined it as any valuable consideration not being marriage. I do not intend to decide whether this is an accurate and complete definition, but I think that at any rate money's worth includes the kind of benefits accruing to the defendant in this case from the possession of the estate and freeing it from the claims and powers of the Earl and the Admiral." 37 A similar case occurred in New South Wales in Perpetual Trustee Co Ltd v Commissioner of Stamp Duties (1970) 72 SR (NSW) 453 where at 457 Sugerman P and Manning JA quoted with approval what Lord Sterndale had said. In both those cases it was imperative for taxation or other reasons that the deceased person get in an interest under a settlement or have a settlement terminated, but his relatives drove a hard bargain. In each case the Court held that so long as there was a fair equivalent given for what was received at an arm's length transaction, there was no gift but full consideration in money's worth. 38 The question as to whether land can be money's worth never arose as far as I am aware in any case involving death or gift duty legislation or in any other taxation case. 39 The expression also occurs in statutes dealing with forfeiture of property of drug suppliers. Under s 79(2) (now repealed) of the Northern Territory Poisons and Dangerous Drugs Act 1983, the Court could order that: "Any money, money's worth … or other thing that relates to that offence be forfeited to the Crown." 40 As far as my researches go, no other State statute defines property which may be forfeited in terms of the expression "money's worth". 41 In Reg v Everall (1987) 89 FLR 116 the prisoner had swapped drugs for a rifle and Asche CJ held that that was money's worth. His Honour relied on what Buckley J had said in Secretan v Hart [1969] 1 WLR 1599 at 1603 (a capital gains tax case): "The expression 'consideration in money's worth' is, of course, one which is very familiar to lawyers as being a way of expressing the price or consideration given for property where property is acquired in return for something other than money, such as services or other property, where the price or consideration which the acquirer gives for the property has got to be turned into money before it can be expressed in terms of money." 42 The point as to whether land could be money's worth came up for decision before Rice J in R v Hood (1988) 54 NTR 1. The purchase price for the defendant's land, the King River Valley Station where he admitted producing cannabis, had been purchased from money obtained from drug deals. Rice J held that land could constitute money's worth under s 79 of the Northern Territory Act and ordered it to be forfeited. He said that "money's worth'" appears to comprehend anything which is capable of having value in money terms. 43 Rice J gained comfort from the decision of Giffard LJ in Re China Steamship & Labuan Coal Co (Drummond's case) (1869) LR 4 Ch App 772. There a shareholder, who had given up his rights in an old company and had obtained shares in a new company, was said to have given money's worth for the shares. With respect, I do not really see how this case gives one much comfort when one is trying to decide whether land is money's worth. His Honour then turned to the decision of Toteff v Antonas (1952) 87 CLR 647, 650-651, where Dixon J said: "The measure of damages in an action of deceit consists in the loss or expenditure incurred by the plaintiff in consequence of the inducement on which he relied diminished by the corresponding advantage in money or money's worth obtained by him on the other side." 44 Rice J then said at p 4: "Since many actions for damages for fraud arise out of the sale of land, it is clear that 'money's worth' is referable to the value of the land and may provide one of the components in assessing the measure of damages in such an action."

As, with respect to his Honour, this appeared to be relatively flimsy reasoning and as no-one had referred to Hood's case in submissions, I asked counsel for further submissions on the point. 45 Some of the submissions consisted of little more than mere computer generated lists of cases in which the expression has been mentioned. However counsel generally agreed that the reasoning of Rice J in R v Hood was hardly convincing. 46 Mr Foster SC submitted that the general flavour of the authorities on the phrase coupled with the strictures to construe the provisions of the Corporations Act as to managed investments schemes literally meant that land should be held to fall within the phrase. 47 Mr McHugh said that R v Hood, a case on completely different legislation did not assist. 48 No other authority assists on the point. 49 I agree with Mr Foster that, generally speaking whilst it is clear that in interpreting the definition of managed investment scheme the Court is encouraged to take a broad view. 50 Doing this, it would seem to me that the mere fact that parties contribute their interest in land rather than cash means they still contribute in money's worth. 51 Mr McHugh further submitted that even if land did fall within the phrase, the Corporations Act required that people contribute money's worth. He put that here the "investors" received land, they did not "contribute" anything. What was necessary for land to be "contributed" would be a transfer at law or in equity to someone. 52 Mr Foster put: "The language of the Corporations Act 2001 does not warrant this conclusion. At the very least, at the outset, the initial members of the scheme were bound in contract to contribute their interests in the Land and the trees on the Land to the scheme. The Fourth Defendant, upon taking a transfer of some interests in the Land, continued to be bound by those contracts. The Fourth Defendant was well aware of the terms upon which the original owners had taken an interest in the Land and had repeatedly propounded the idea that the Land had to be dealt with upon the basis that it was to be pooled in the interests of all tenants-in-common and managed as a scheme. It must be taken to have become bound to the same contractual obligations by novation. The Land and the interests of all tenants-in-common had to be pooled and made available for the purposes of the scheme: the requirement was contractual and bound all relevant parties. Alienation of the Land is not required." 53 In my view Mr Foster's submissions here are sound. 54 It should be further noted that the Courts have taken a wide view of "contribution" in this area of the law: ASIC v Young (2003) 173 FLR 441, 448. Accordingly we have here a managed investment scheme; see ASIC v Enterprise Solutions 2000 Pty Ltd (2000) 35 ACSR 620. 55 (2) Managed investment schemes did not exist prior to 1998. In that year the then Corporations Law was amended by Act No 48 of 1998 to insert the current definition and also Part 5C of the Corporations Law was inserted by the Managed Investments Act No 62, 1998 (Cth). That Act added a new Division 11 to Part 11.2 consisting of sections then numbered 1451 through to 1465 which dealt with the transition from the Corporations Law provisions re prescribed interests to the new scheme of managed investments. The section then numbered 1453 made it clear that the provisions re managed investment schemes applied to prescribed interests under the former Law and that there were two years to register under the new provisions. Those sections have now expired or been repealed but their effect was that as at 1 July 1998 (or within two years thereafter), there was a requirement to register something that fell within the definition of managed investment scheme even though it was commenced before 1 July 1998. 56 (3) As mentioned at the commencement of these reasons, one reason Mr Foster SC gave for a receiver rather than a trustee for sale was that it may be necessary to manage the land prior to sale to make sure it attracted the best price. As the evidence turned out, this possibility became less and less bright because on the balance of probabilities all the marketable timber has been harvested, what remains is in gullies which are almost inaccessible. Even if it could be removed, there is no money that would be available to the receiver to harvest this timber. Moreover, the stumps on the land are very costly to remove and there is no money to seed new plantations. 57 Furthermore the power to give directions under s 66D of the Conveyancing Act is sufficient to deal with any problems that might arise in this connection. 58 Accordingly, it is not necessary to go into great detail as to the rights of the parties to manage the land. However, I should deal with the topic briefly. 59 As I have said earlier, Mr McHugh's submission was that the mortgagee from Ausforest had the right to veto the removal of timber. 60 The mortgagee, Arrow, has a registered mortgage over the undivided shares of which Ausforest owns and is the registered proprietor and an equitable charge over other shares in which it is not registered. It has appointed receivers and so has not gone into possession. 61 As I understand the law, a mortgagor of Torrens System land in Australia may use the land as if it were his or her own up until the mortgagee goes into possession, at least so long as the mortgagor does not damage the reversion by committing waste. 62 The 11th English edition of Fisher and Lightwood's Law of Mortgage (Lexis Nexis, London, 2002) para 19.3 sets out the law in England. It must be remembered that in England the mortgages are like an Old System mortgage in New South Wales so that the position with Australian Torrens mortgagors is an a fortiori one. The learned authors say: "Although the mortgagor in possession has parted with his immediate estate, he remains in possession at the pleasure, and consistently with the right, of the grantee. He is entitled to exercise the ordinary rights of property. … Whilst in possession the mortgagor may not diminish or prejudice the security, for example by committing waste (by felling timber or pulling down a house); he can be sued by the mortgagee for injuring the property and conduct putting the security at risk will be restrained by injunction. Upon the mortgagee taking possession, the mortgagor is not entitled to the crops growing on the land at the time the mortgagee takes possession, nor to rents in arrear or accruing." 63 It is not often these days that one needs to refer to the law of waste. The law is summarised in Woodman's, The Law of Real Property in NSW Vol 1 (Law Book Company, 1980) pp 144-5: 1. It is not waste for the occupier to make use of estovers, that is, wood and timber for repairing a house, burning of it, repairing fences etc, so long as this is limited to the present needs of the occupier. 2. Timber trees may be cut in the ordinary course of estate management. 3. Ornamental trees or trees for shelter may not be cut.

Woodman notes at 145: "Conditions as to trees are so different in Australia that it is difficult to apply these rules here. The basic problem, however, is to determine what constitutes a timber tree … "

He then adds something which today I can prove untrue: "It may be doubted whether … there will be judicial decisions as to what are timber trees, but it may be assumed that those native trees which are normally felled for saw milling purposes would be included." 64 I now have to deal with the above question. The trees involved in the instant case are pinus radiata whose derivation I have already set out. They are not a native tree, but they have been introduced for the purpose of being logged and used as structural timber. 65 In Re Hart [1954] SASR 1, Reed J held on the material before him that pinus radiata was not a timber tree. 66 However, when one reads the judgment carefully, Reed J considered himself bound by the Full South Australian Supreme Court decision in Chapman v Strawbridge [1910] SALR 118, where that court had held that mallee growing on Kangaroo Island was not timber because there was insufficient evidence that it was commonly converted to building for the habitation of man or the like. Likewise, in Re Hart there was no such evidence. Reed J adopted that test. Applying it to the evidence in this case, the purpose of producing pinus radiata was to have millable timber for structural building. Under the test that would be timber. 67 If trees are timber strictly so called, then as Jessel MR said in Honywood v Honywood (1874) LR 18 Eq 306 at 309, that once the Court arrives at the determination that the trees in question are timber, a person liable for waste cannot cut it down. He then said: "That I take to be the clear law, with one single exception, which has been established principally by modern authorities in favour of the owners of timber estates, that is, estates which are cultivated merely for the produce of saleable timber, and where the timber is cut periodically. The reason of the distinction is this, that as cutting the timber is the mode of cultivation, the timber is not to be kept as part of the inheritance, but part, so to say, of the annual fruits of the land, and in these cases the same kind of cultivation may be carried on by the tenant for life that has been carried on by the settlor on the estate and the timber so cut down periodically in due course is looked upon as the annual profits of the estate, and therefore, goes to the tenant for life. With that exception, I take it, a tenant for life cannot cut timber." 68 In the present case there is a timber estate and accordingly, even though I hold that pinus radiata is timber in the present case, until the mortgagee takes possession the mortgagor is entitled to fell timber. The receiver, however, may very well at the moment, so far as the shares in which Ausforest is the registered proprietor, have rights as the mortgagor's agent to the income from the land, but this is of course clouded by the fact that there is some sort of nebulous management scheme in place, the full details of which have not been disclosed to me. 69 (4) The question then arises whether it is best to put in a trustee for sale under s 66G of the Conveyancing Act or make an order for winding up under s 601EE of the Corporations Act. 70 It first should be noted that under s 601EE, the winding up is not a winding up in the ordinary sense of the word. The authorities decided under the section show that what winding up entails is putting an end to the illegal operation and dealing with its assets and obligations; see eg ASIC v Commercial Nominees of Australia Ltd (2002) 42 ACSR 240. As Barrett J said in that case at 243 [12]: "It seems to me as a matter of general principle, however, that what is contemplated is the realisation of the assets of the scheme, discharge of liabilities and distribution of any surplus among beneficiaries or members in an appropriate way."

However, there may be situations where the winding up merely involves the transmogrification of the scheme into some registered management scheme; see eg ASIC v Atlantic 3 Financial (Aust) Pty Ltd (2003) 47 ACSR 52. 71 Furthermore, it is clear that a winding up can take place in stages and that the Court can direct that the person winding it up shall only do certain things in the first instance under its power in s 601EE(2), empowering the Court to make any orders it considers appropriate for the winding up of the scheme. If, as is requested here, a receiver is put in, then the receiver may seek directions of the Court: ASIC v Commercial Nominees of Australia Ltd supra. At first blush, putting in a receiver and limiting his or her activities in the first instance would appear to be the most appropriate way to proceed. 72 However, there are two fundamental objections. 73 The first of these is that raised by Mr McHugh, that is, that there is considerable vagueness as to what is the scheme and what are its assets. There seems little doubt that the land in Lot 3 Hai Welyki is an asset of the scheme, but there is some suggestion that it may contain other parts of the adjoining plantation as well. Moreover, there is no clear-cut statement of the rights or obligations with respect to management and harvesting of the plantation. 74 It might be a different matter if there were some free assets available to the receiver to work out what are the assets of the scheme and what are its liabilities and who are its members, but there is no money here apparently and it is not clear what the answers to these questions are. These problems either mean that if, as Mr McHugh submits, one cannot work out precisely what are the assets of the scheme and who are the members, one should not order it to be wound up or more probably, that it is better first to sell the land, produce some monies and then proceed to wind up the scheme later. A third course is to order that the scheme be wound up and as a first stage, appoint trustees for sale. This third method would meet the objection made by Mr Johnson who recoiled in horror that the Court would allow an illegal scheme to continue in operation one day longer than necessary. 75 The second main objection to the appointment of a receiver as such is that Arrow has a mortgage over the undivided shares registered in the name of Ausforest. If an order is made under s 66G, then the trustees for sale will be able to sell subject to any encumbrances affecting the whole property, but free from encumbrances affecting any independent individual undivided shares. This is provided for in s 66G(1). 76 I have not been able to find any authority as to what happens to registered mortgages of an undivided share when the trustee for sale is appointed of the whole parcel. It would seem that the Registrar General would need to cancel the certificates of title and issue a new certificate for the whole property. The mortgagee of individual shares, however, could not protect its interest by caveat as they would have no right as against the trustee other than the right to have him administer the trust. It would seem that the rights of the mortgagee of an individual undivided share are simply to claim the share of proceeds of sale which otherwise would pass to the mortgagor and that he or she has a charge over that share. 77 Mitra's Co-Ownership and Partition 7th ed (Eastern Law House, Calcutta, 1994) suggests that this is the case, see pages 151 and 413, and although there may be some difficulty in attachment at law, there should be no difficulty about rights in equity. This appears to be the situation in New South Wales. This matter was not argued before me, and if need be, it can be fully argued at some directions stage, though one must always bear in mind in this case that there seems to be little free money available. 78 The next matter to address is whether there is any management of the land prior to sale. Originally I thought that this was a valid objection, but it seems to me that there is no money to do any management and the trustees for sale could direct their minds as to what was necessary and seek directions, though it may be best to appoint as trustees for sale some people who have had experience with plantations. 79 Accordingly, it seems to me that the appropriate order is to declare that there is an unregistered mortgage scheme, to order the scheme to be wound up, and to carry out that winding up by appointing two persons as trustees for sale of the land under s 66G of the Conveyancing Act, to give liberty to apply for directions and to then have the property sold, bring the matter back and work out the most just, swift and cheap method of ascertaining individual rights. 80 One big problem will be costs. I am just horrified at the amount of paper that was produced by the plaintiffs. Their bill for costs might indeed exceed the whole value of the land. Costs would be unsecured in any event, so that it does not matter what order the Court makes because the plaintiffs will be receiving no actual funds. However, if an order for costs is to be made, then the costs assessor must be directed to enquire into what was reasonably necessary in order to obtain the statutory relief under the Corporations Act on a party/party basis. 81 (5) I have indicated in (4) what the proper orders should be. The only remaining question is who should be appointed as trustees. 82 The plaintiffs put forward James Richard Porter, the first defendant has put up Peter Charles Hicks, though it says it has no objection to the appointment of an alternate liquidator from the Supreme Court list and Ausforest has put up Mr Smith. All the suggested appointees are persons who have been serving this country as official liquidators for some time and are persons of the uttermost good character. 83 There is evidence that Mr Hicks has no previous connection with the present parties, though he was the liquidator of Pine Forests before it was "rescued" by Mr Z M Alexander's company, Kommodore Developments Pty Ltd. 84 There is some disturbing evidence in Mr Alexander's affidavit. He was not cross-examined on this, nor was there any contrary material. On 1 April 2004, Mr Alexander rang Mr Crocombe, the first plaintiff, and suggested that they should join forces against Ausforest. Mr Crocombe replied that his contract was with the first defendant and he was going to appoint a liquidator to it and "get Ausforest that way". Mr Alexander put that his company had a 20% stake in the forest and Mr Crocombe had 1% and that Mr Alexander's company should have the running of the action. On 2 April there was another conversation between Messrs Alexander and Crocombe. Mr Crocombe said, "The liquidator has arranged to finance this case through a finance company." Mr Alexander replied, "If we run our case jointly against Ausforest my company will fund the action and if we win then the costs can be covered." Later that day Mr Crocombe said, "You've got 20%, I've got 1% that's not enough to get control. If I appoint a liquidator he will have full control. We are proceeding with the case against PFA". [PFA is, of course, the first defendant]. Mr Alexander said, "As a result of the conversation with John Crocombe … I consider that if appointed as liquidator and trustee for sale, Richard James Porter would involve a litigation funder. The sale and liquidation costs are likely to be higher than any other liquidator as they will include the costs of the litigation funder. This is likely to result in lower returns for the investors in Lot 3." 85 In her affidavit of 1 February 2005, the employed solicitor for the plaintiffs said that she had made enquiries and Mr Porter denied that there were any arrangements in place between him and any funder or that he had any financial interests in the abovenamed scheme and she said that she had written to the first defendant's solicitors to that effect over the last three months. Mr Crocombe in his affidavit of 28 January denies a considerable part of Mr Alexander's affidavit. He was not cross-examined either. 86 There is no doubt that Mr Hicks has had dealings with Mr Alexander in the past. However, those dealings would appear to be in connection with the sale of some pine forest companies in liquidation to Mr Alexander's companies rather than him acting as a colleague of Mr Alexander. 87 I cannot resolve the dispute between Mr Alexander and Mr Crocombe as to the conversations in April 2004. However, I must have great suspicion in view of the large bulk of materials produced by a person with less than 1% interest that Mr Alexander's version of the conversation has more credibility. Mr Hicks has had some experience with plantations and does not appear to be a person in Mr Alexander's camp. Moreover, Mr Alexander's company has a greater interest in a successful outcome than Mr Crocombe and his wife. The third alternative is Mr Smith but he is the nominee of the mortgagee for Ausforest and they may be the claimants against the fund that is produced by the sale of the property with the investors being in the other camp. 88 A procedure has grown up in connection with sales ordered by the Court. The Court has a complete discretion as to who it will appoint to conduct a sale, being guided by how the Court considers it most beneficial to the estate, though ordinarily the conduct of the sale is given to the plaintiff even though the plaintiff may not have the greatest interest in the property; see eg Dixon v Pyner (1850) 7 Hare 331; 68 ER 135; Dale v Hamilton (1853) 10 Hare Appendix 1 vii; 68 ER 1116 and Murray v Geoffroy (1918) 18 SR (NSW) 259. 89 Although the decision is close to the line on this matter it seems to me that Mr Hicks' past experience in the industry is a plus for him and the suspicion that still surrounds the plaintiffs' nominee is a minus for him. Accordingly, I consider it is both beneficial for the estate and for the majority independent owner that Mr Hicks and one of his partners be appointed trustees for sale. 90 Mr McHugh rightly pointed out in his address that he had put a representative order in the cross-claim because all the co-owners should be represented before the Court on the making of the s 66G order. This is perfectly correct and a representative order should be made. 91 Another problem is that not all persons interested in the winding up of the scheme are before the Court. 92 Before the English Winding Up Act of 1844, if a creditor wished to proceed against a partnership to wind it up he must sue all the partners by name and this rule was applied to winding up of joint stock companies, any inconvenience being dismissed in the words of Shadwell VC in Wheeler v van Wart (1838) 9 Sim 193, 194; 59 ER 332 at 333: "The plaintiffs have chosen to enter into a partnership consisting of an unlimited number of members, and therefore they have themselves created the difficulty they complain of."

See also McPherson on Company Liquidation 4th ed (LBC Information Services, 1999) p 12. 93 This point does not have much actual force as s 601EE of the Corporations Act specifically allows a member to apply to wind up an unregistered scheme. However, it may well be that judges should ordinarily ensure before making such an order that all interested parties are able to make their voice heard probably by advertisement. There was no advertisement in the instant case. In view of the orders I am going to make it does not matter in this case. 94 So far as the formal order is concerned, I will stand the matter over for short minutes to be brought in and I will provisionally list it for 22 March 2005 at 9.30 am, but if counsel advise my Associate the week before that some other day is more suitable, that day can be changed. 95 The formal order will take a form such as the following:

1. Order that the plaintiffs represent for the purpose of these proceedings all persons who hold interests in the land, Lot 3 Hai Welyki

2. Order that the scheme [described with as much particularity as possible] is an unregistered managed investment scheme within the meaning of the Corporations Act 2001.

4. The Court gives the following directions as to the winding up of the scheme: (1) Peter Charles Hicks and …………………… of Forsyth Insolvency to be trustees for sale of [describe land]. (2) [Follow usual order in Miller and Horsell for appointment of trustees for sale including that the trustees are to sell free from encumbrances affecting any undivided share] (3) Note that the trustees have the powers under s 66D of the Conveyancing Act. (4) Order that the trustees retain in a trust account the net proceeds for sale after paying out the reasonable costs of sale and any encumbrances secured on the whole of the land.

5. Reserve question of costs to be considered after the land has been sold.

6. Further consideration reserved. 96 I have directed my mind as to whether s 66H of the Conveyancing Act will cause particular difficulties to the trustees. They should be able to make a list of the persons who have registered interests in the land without too much difficulty and in any event the section says that consultation shall be "so far as practicable". It would not seem that the Court has any general dispensation power to remove from the trustees the obligation to consult under that section. I trust, however, that this will not be an invitation for the further expenditure of costs.

DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated.