Plaintiffs and Defendants by Counterclaim v Defendant and Plaintiff by Counterclaim

For the Plaintiffs/Second Defendant by Counterclaim

1 Willmott Forests Limited ('WFL')[1] acted as the responsible entity of a number of managed investment schemes. In September 2010, WFL collapsed financially and receivers were appointed as was a voluntary administrator. Subsequently, the creditors resolved to place WFL (and other companies in the Willmott Group) into liquidation. Craig Crosbie and Ian Carson[2] were appointed as the liquidators.

2 One of the schemes in respect of which WFL acted as responsible entity and manager is the Willmott Forests 19951999 Project (ARSN 089 598 612) ('Scheme'). On 21 December 2011, the members of the Scheme passed a resolution to replace WFL with Primary Securities Ltd ('Primary')[3] as the responsible entity ('RE') of the Scheme. A number of issues have arisen as to the rights which Primary has and may exercise as the new RE.

3 The Scheme is a forestry scheme. Investors (known as 'Growers') each took a lease of one or more hectares of land ('the Leased land') and grew timber on it with that timber to be harvested and sold about 16 to 25 years after planting. There are 14 plantations operating in relation to the Scheme.

4 The Leased land is registered in the name of WFL. In addition, there is contiguous land registered in the name of WFL that is not leased to the Growers ('the Non-leased land'). The Non-leased land is used for other schemes operated by WFL, for access roads, firebreaks and buffers along property boundaries, power lines and creeks, or for native timbered reserves and native grassland reserves. In addition, some houses, sheds and huts are located on the Non-leased land. I will refer to the Leased land and the Non-leased land together as 'the Land.'

5 Attachment A to these reasons is an aerial photograph of one of the plantations. Attachment B is a map of the allotted hectares on part of that plantation. The Attachments both distinguish between the Leased land and the Non-leased land. On the aerial photograph, the boundaries of treed areas are bordered in white. The certificate of title boundaries are highlighted in black. An example of a buffer zone on Non-leased land can be seen on the left hand side of the aerial photograph between the planted areas (outlined in white) and the title boundary (shown in black). Tracks are also visible on that photograph. They too are situated on Non-leased land.

6 As it has replaced WFL as the RE, Primary contends that it is entitled to stand in the shoes of WFL so far as the Land is concerned for the term of the Scheme (which may be as long as April 2075). On the other hand, WFL contends that it owns all of the Land in its own right, not in its capacity as the former RE, with the consequence that Primary has no entitlement in respect of the Land, other than rights under a Forest Property Agreement (which concerns Victorian land) and Forestry Right Agreement (which concerns New South Wales land), about which I will say more later. Suffice to say for the purposes of this introduction that under the terms of the Forest Property Agreement, WFL has vested the trees and the product of them, in its related entity, Willmott Forest Investment Management Pty Ltd[4] ('WFIM') (on behalf of the Growers). Under the Forestry Right Agreement, WFL has granted forestry rights to WFIM (on behalf of the Growers) which include the right to enter the land which is the subject of the agreement to establish, maintain and harvest the trees.

7 The Liquidators began this proceeding to seek a declaration that the Land is not 'scheme property' within the meaning of s 9 of the Corporations Act 2001 (Cth).[5] Primary has counterclaimed seeking various declarations and orders which would have the effect of enabling it to exercise rights in respect of the Land. The Liquidators and Primary agree that there are six questions that must be answered for determination of the issues in dispute between them in this proceeding. The questions and the answers to them are:

1. Is the Land 'scheme property' (as that term is defined in s 9 of the Corporations Act 2001 (Cth)) of the Scheme?

1. On 22 December 2011 (that being the date on which Primary replaced WFL as the RE of the Scheme) did WFL's rights in relation to the Scheme in respect of the Land become rights of Primary for the life of the Scheme by reason of ss 601FS and 601FT of the Corporations Act?

Yes, insofar as those rights were rights of WFL in relation to the Scheme.

1. Which, if any, of the certificates of title of the Land, the Forestry Right Agreement, the Forest Property Agreement, and the Grower Leases ('Scheme Documents') are to have effect for the life of the Scheme as if Primary (rather than WFL) is the party to, or referred to in, that document?

The Forestry Right Agreement and the Forest Property Agreement insofar as those agreements concern the Scheme.

1. Is WFIM required to transfer its rights under the Forestry Right Agreement and Forest Property Agreement ('Forestry Rights') to Primary or to a party nominated by Primary?

1. Do the Forestry Rights extend to the Non-leased land (that is the Land that has not been leased to Growers pursuant to the Grower Leases)?

1. Is the Land held on trust by WFL (and any of its successors in title) for the life of the Scheme, for the benefit of Primary and the Growers?

8 My reasons for the answers that I have given are set out below. I will first describe the Scheme, the relevant documents relating to it and some facts about the Land. I will then consider the relevant statutory provisions and case law. Finally, I will deal with each of the questions posed by the parties. The schedule to these reasons sets out a list of the terms that I will use.

9 The Scheme had its genesis under the old regulatory system for 'prescribed interests'. Under that system, prescribed interests schemes were administered by both a manager and an independent trustee or representative. From 1 July 1998, the Managed Investments Act 1998 (Cth) introduced a new regulatory system based on different concepts. Under the new system, a sole RE was charged with administration of the investment scheme rather than the dual engagement of a manager and representative. No longer were scheme assets held separately by a trustee/representative. Rather, an obligation was imposed on the RE to ensure that scheme property is clearly identified and held separately from the RE's own property and property of any other scheme.[6]

10 The amending legislation made provision for the transition of investment schemes from the old prescribed interests system to the new managed investment scheme system.

11 The Scheme was established under the old prescribed interests system by an Investment Deed dated 13 April 1995. The Investment Deed was entered into by the Manager (originally Timber Capital Limited ('TCL') which was later replaced by WFL) and the Representative (Burke Bond Queensland Limited) ('Burke Bond'). I will say more about this deed below, but first, I will consider the prospectuses that were issued for each year of the Scheme from 1995 to 1999.

12 The prospectuses are essentially in the same terms, except that the 1999 prospectus provided for the payment of rent and fees by the Growers annually rather than as an upfront payment as was the case under the earlier prospectuses. That difference is of no significance in determining the issues in this case.

13 I will use the 1995 prospectus as an example. The statement, 'A New Approach to Tax Effective Forestry Investment', appeared on the front cover of the prospectus. This 'new approach' was confirmed in the body of the prospectus which included the following statement:

Although you may have been exposed to forestry investment previously, we at Timber Capital Limited have taken a different and, we believe, more secure approach.

14 The prospectus then went on to explain the differences between this investment and others. Mention was made of regular reports, a future maintenance account, professional forest management, finance and most relevantly for present purposes the following:

Trust Account Security

The Representative will establish and control a trust account into which application monies will be deposited. These funds can only be released to the Manager upon minimum subscription being attained. As a safeguard for investors the Manager will within 30 days of the issue of a Hectare deposit, into a Development Account established by the Representative, a portion of the application monies ($900/Hectare). The Representative will control this account and these moneys will only be released for purposes relating to the establishment of the plantation.

15 'Hectare' was defined as an area of land and trees which equates to 2.471 acres.

16 Primary relied heavily on the reference to the Development Account and the anticipated deposit from the application moneys of $900 per hectare into it. As will be seen below,[7] the Investment Deed made provision for a 'Development Amount' of $900 per hectare to be paid by the Representative to the Manager for a number of things, including the purchase of land.

17 After dealing with the trust account, the prospectus continued on:

Land Security

The Manager will arrange for the purchase of the Project Land and lodgement of the Title with the Representative. The Manager has agreed with the Representative not to mortgage or charge the Project Land. The Representative will hold the unencumbered Title until completion of the Project. The land will be leased to Growers.

'Project Land' was defined as the land which was outlined in the consultant forester's report which was included in the prospectus. In the 1995 prospectus, two properties were identified as being subject to options to purchase - 'Cabanandra' (with a purchase price of $460,000 and estimated net plantable area of approximately 590 hectares) and 'Avonleigh' (with a purchase price of $337,500 and estimated net plantable area of approximately 460 hectares). The consultant forester stated that:

...after minimum subscription is attained and in line with the number of applications for Hectares the Manager will purchase all or part of one or more of these properties.

Roads are constructed on alignment and graded for utilisation prior to planting, with culverts, bridges, etc being installed as required ...

Fire breaks will be constructed on all plantation boundaries with width of 10m-20m on north and west sides and 5m-10m on south and east sides (double the required width for insurance purposes). Width will depend on plantation location to existing roads and the general fire history of the plantation locality. Dams or water points on natural creeks will be constructed and maintained as water filling points for fire suppression operations where possible.

19 The prospectus provided for each Grower to apply for one or more hectares by completing an application form and entering into three agreements with TCL - a Preparation & Planting Agreement, a Maintenance Agreement and a Lease Agreement. Growers were to pay $11,950 for a hectare on which pine trees[8] were to be grown. The contribution of $11,950 was to be split as follows:

• Preparation & Planting Agreement - $4,950 per hectare

20 Growers had the option to pay cash for each hectare, or alternatively to borrow funds with which to make the payment. If loan funds were used, the Grower had the option to defer repayment of the principal until final harvest by assigning 30 per cent of their holding to the financier (an associated company of the Manager). The prospectus described the role of each of the project participants - the Grower, the Representative, the Manager and the Forest Manager. In respect of the Manager, the prospectus stated:

The Manager administers the Project and, as owner, leases the Project Land to the Grower through the Lease Agreement. It is contracted by the Growers, through the Preparation & Planting Agreement and the Maintenance Agreement, to arrange for the establishment and maintenance of the plantations. The Manager is a specific purpose company which was incorporated in 1994 for the purpose of administering and managing the Project. As at the date of the issue of this Prospectus the Manager has net assets of $50,000.

21 'Plantation' was defined in the prospectus as 'All the land and trees which are the subject of this Project'. 'Project' was defined as 'The Project known as the Timber Capital Plantation and which is described in this Prospectus'.

22 The prospectus stated that the Project would commence once the minimum subscription of 50 hectares was reached.[9] In fact, by the time of the 1996 prospectus, 970 hectares[10] had been allocated. Consequently, the amount in the Development Account should have been $873,000 which was more than the $797,500 required to purchase the Cabanandra and Avonleigh properties.[11]

23 The prospectus included a forecast expenditure statement which did not show that any of the money to be contributed by the Growers would be spent on the purchase of land.[12] Primary submitted that this is not surprising and does nothing more than reflect what was said elsewhere in the prospectus as to the division of the $11,950 between the Preparation & Planting, Maintenance and Lease Agreements. Primary again pointed to the reference to the Development Account in the prospectus and the permissible use of those funds under the Investment Deed for the purchase of land.

24 McKenzie & Partners provided a taxation report which was included in the prospectus.[13] In it they stated that they understood that the proposed investment related to an opportunity for Growers to participate in the growing and subsequent sale of pine trees by carrying on their own business upon land leased by them from the Manager. McKenzie & Partners concluded that:

Expenditure incurred by Growers under the Preparation & Planting Agreement, the Maintenance Agreement and the Lease Agreement can be categorised as expenditure necessarily incurred in the carrying on of a business of forestry operations with a view to deriving assessable income from these operations. The expenditure is not expenditure of a capital or private or domestic nature and, therefore, will be an allowable deduction under Section 51(1) of the Income Tax Assessment Act 1936.

25 In the section of the prospectus which provided further information, reference was made to the Investment Deed. The prospectus informed the reader that for further details of their rights under the Investment Deed they may examine a copy of it at the office of the Manager. Paragraph 11(2) of the further information section of the prospectus read:

Except for the remuneration or amounts received by way of reimbursement that have been paid or have accrued or will accrue to the Manager from time to time under the [Investment] Deed and the Agreements referred to throughout this Prospectus the Manager has no interest in relation to the Project, and no amount has been paid or agreed to be paid to the Manager in cash or otherwise by any person:

(a) to procure subject subscriptions for, or purchases of, Units; or

(b) for services rendered in connection with the promotion or inception of the Project; or

(c) for services rendered in accordance with the [Investment] Deed.

This paragraph was widened by an amendment made in a supplementary prospectus. The amended clause provided that the Manager had no interest not only in relation to the Project but also no interest in 'the promotion or in the property proposed to be acquired for the purposes of the Project.' This broader wording was used in the 1996 and subsequent prospectuses.

26 As noted above,[14] at the time the 1995 prospectus was issued, no land had been purchased but both Cabanandra and Avonleigh had been identified as land to be used in the Scheme. In later prospectuses, the land that had been purchased in earlier years was included with additional land identified as being available land under option should that be necessary. So, the prospectus for 1996 stated that 'the land to be allocated to Growers investing under this Prospectus is likely to be drawn from land already owned by the Manager [Cabanandra and Avonleigh] and depending on the total number of Hectares applied for' land which was subject to an option to purchase (Ederveen, Cameron's Hill, Numeralla and Woolison). A similar statement was made in the 1997 prospectus with the land owned by the Manager said to be Cabanandra, Avonleigh, Cameron's Hill, Numeralla and Glengarry and with Woolison, Paddy's Flat, Cottesloe and Delegate 5 being listed as land under option. The Liquidators' investigations have confirmed that this is what happened so that land was identified for purchase in respect of each prospectus and if any land was left over from a particular prospectus, it was carried forward and made available for Growers investing under the next prospectus. One exception, however, is the Glengarry property. Although it was listed in the 1997 prospectus as part of the land already owned, it was not land that had been listed as under option in any of the earlier prospectuses.

27 The prospectus encouraged Growers to visit and inspect their plantation. The hectares are not delineated physically on the ground but rather are identified by grid lines such as those shown on Attachment B of these reasons. To visit a plantation, Growers need to use the access roads on the Non-leased land.

28 As noted previously, the Investment Deed was entered into between Burke Bond (as Representative) and TCL (as the Manager). The first recital in the Investment Deed stated:

The Manager desires to establish a project to be known as 'Timber Capital Plantation' under which Growers will be invited to enter into agreements pursuant to which each Grower will engage the Manager to clear, plant and maintain a pine forest upon Land leased by the Grower from the Manager.

29 In conformity with the prospectuses, the Investment Deed provided for investment in the Project by Growers through the purchase of 'Hectares'. 'Hectares' was defined as 'an interest in one hectare of the Land and all improvements thereon pursuant to a Lease Agreement, a Preparation & Planting Agreement and a Maintenance Agreement'. The amounts paid by the Growers as application moneys were to be received by the Representative and paid into an 'Application Account'. Once the minimum subscription for each prospectus was attained, the money in the Application Account was to be paid to the Manager. There was then to be payment of a 'Development Amount' by the Manager to the Representative. 'Development Amount' was defined to mean $900 for each Hectare or such other amount as nominated by the Manager in the prospectus under which the Hectare was issued. This accords with the $900 per hectare to be paid into the Development Account which was referred to in the prospectus as part of the explanation of the 'more secure approach' of the Scheme.[15] However, the Investment Deed provided more detail than the prospectus as to what was to happen with the Development Amount. The Investment Deed provided:

6.2 (a) Within 30 days of the issue of a Hectare the Manager must pay to the Representative the Development Amount in respect of that Hectare.

(b) The Representative must hold any Development Amount paid to it by the Manager in the Development Account until the Development Amount is dealt with in accordance with clause 6.3 or clause 6.4.

6.3 The Representative must pay to the Manager from the Development Account any amount requested by the Manager, upon the Manager certifying to the Representative that the Manager has expended or committed itself to expend, in relation to:

(a) purchasing Land;

(b) preparing the Land for the planting of Trees;

(c) the planting of Trees; or

(d) any other works connected with establishing the Plantation.

6.4 Any amount remaining in the Development Account at the expiry of 12 months after the commencement of the Project must be paid by the Representative to the Manager.

30 'Plantation' was defined to mean 'that part of the Land as is planted with Trees, together with such of the Land as is required for the purposes of access and firebreaks'. 'Land' was defined to mean 'any land acquired by the Manager for the purposes of the Project'. Ian Richard Bond, who is a director of Burke Bond and former director of WFL, gave evidence that some of the money held by Burke Bond in its capacity as Representative was released to WFL for the purchase of land. The Liquidators submitted that Mr Bond's evidence was irrelevant and, even if it was not irrelevant, it was so insubstantial as to be of no assistance to the Court. Primary observed that the Liquidators have access to the books and records of WFL and are in a better position to put on evidence as to the use of funds had they chosen to do so. The Liquidators having failed to do this, Primary had put forward the best evidence that it could. For reasons which will become apparent later,[16] it is not necessary to determine these issues.

31 Under the Investment Deed, the Manager was obliged to maintain a register of all Growers which, among other things, was to include a description of that portion of the Land leased by the Grower sufficient to identify the Grower's interest in the Land. The Liquidators urged the Court to note that the Grower's interest was in a portion of the land, that is, in hectares and was not referred to as an interest in the Plantation.

32 The Investment Deed provided that both the Manager and the Representative were to recognise the Grower as the absolute owner of the hectares as set out in the register. A process for transfer by a Grower of their hectares was also included in the Investment Deed. Part of that process included an assignment of the Grower Lease.

33 The protection for Growers foreshadowed in the prospectus was set out in clauses 23.3 and 23.4 of the Investment Deed which provided as follows:

23.3 The Manager covenants that it will within 30 days after the issue of title documents following completion of the purchase of the Land deliver to the Representative the title documents for safekeeping by the Representative. ...

23.4 The Manager covenants that it will not grant to or give to any person any mortgage charge lien or any other encumbrance over or in respect of the Land whether legal or equitable.

34 The Liquidators submitted that if the Land was scheme property, clause 23.4 would be otiose because in those circumstances the beneficial interest in the Land could not be mortgaged, for example. I do not accept that submission. In the absence of such a provision, there would very likely be power to mortgage assets for the purposes of a scheme and for the benefit of investors.

35 The Investment Deed provided for the removal and retirement of the Manager. In respect of a new Manager, clause 15.5 provided:

Every new Manager appointed..., other than the Representative when acting as Manager, must immediately on appointment execute a deed in any form which the Representative requires whereby the new Manager undertakes to the Representative and the Growers of the relevant Project jointly and severally to be bound by all the covenants on the part of the Manager under this Deed from the date of appointment. From that date, subject to payment to the Representative of all sums due by the retiring Manager to the Representative under this Deed, the retiring Manager is, subject to the terms of any discharge given..., absolved and released from all its covenants under this Deed except in respect of any antecedent breach, and the new Manager may thereafter exercise all the powers and enjoy and exercise all the rights and is subject to all the duties and obligations of the Manager under this Deed.

36 The Investment Deed also provided for its amendment on conditions which included that the amendment would not, in the opinion of the Representative, adversely affect the rights of the relevant Growers.

Transition to a Managed Investment Scheme - the Constitution

37 As noted above, with the introduction of the Managed Investments Act 1998 (Cth) the investment project transitioned to a registered managed investment scheme in the latter part of 1999. As a consequence, the roles of the Representative and the Manager merged into the role of RE. A supplemental deed poll provided for the Investment Deed to be altered so that the terms of the Investment Deed were replaced by a constitution ('Constitution'). One of the recitals to the supplemental deed poll provided:

1. In this deed, the Manager [RE] proposes to exercise the statutory power granted by section 1460(3) of the Corporations Law to amend the Investment Deed without the need to comply with either the provisions of the Investment Deed or section 1069A of the Corporations Law, and specifically to exercise the power conferred by section 1460(3)(b) as modified by ASIC Class Order 98/2159.

38 Under s 1460(3)(b) of the Corporations Law,[17] a deed could be modified unilaterally to remove from it provisions that were included to satisfy the requirements under the old law.

39 Primary submitted that the Constitution should not be construed in a way that meant that the Growers' rights were adversely affected by its introduction. In this regard it pointed to the Investment Deed which only permitted amendment if there was no adverse effect.[18] In addition, Primary drew the Court's attention to s 1460(3)(d),[19] under which modifications could be made where the amending body 'reasonably considers the modification is in the best interests of holders of the prescribed interests, is fair as between holders and will not adversely affect holders' rights.'

40 In my opinion, Recital F makes it clear that the power being exercised was under s 1460(3)(b) and not (3)(d). Because of the effect of s 1460(3)(b), the power could be exercised without complying with the provisions of the Investment Deed, but only to the extent that the modification was for the purpose of removing provisions that were included to satisfy the old law. If the effect of the amendment was to put the Growers in a worse position in respect of the Land, then that would not have been sanctioned by s 1460(3)(b) because the amendment was not one removing an old law provision. Consequently, in my view, in the absence of clear language to the contrary, the Constitution should be construed as leaving in place any rights that the Growers had in respect of the Land under the Investment Deed.

41 The definitions of 'Hectare', 'Land', 'Plantation', and 'Project' in the Investment Deed were in essence carried over to the Constitution. However, the Constitution introduced a new defined term of 'Assets' as follows:

all the property, rights and income of the Project, but not application money or property in respect of which Hectares have not yet been issued.

42 The Liquidators contended that it is important to note that the Assets do not include property in respect of which hectares have not been issued.

The Assets vest in the Manager, but must be clearly identified as property of the Project and held separately from the assets of the Manager and any other managed investment scheme if and to the extent that the Corporations Law so requires.[20]

44 The Constitution provides that the Assets must be held on trust for the Growers.

45 WFL held a direct interest in the Scheme in its personal capacity. The Constitution permitted this.

46 Like the Investment Deed, the Constitution provided for the transfer of a Grower's interest which involved an assignment of the Grower Lease with the consent of the RE. The Constitution provides that the Project will terminate on the earliest of:

(a) 12 April 2075 [that being the perpetuity period];

(b) where there are no contractual obligations to be fulfilled or performed by the Manager [RE] under any Project Document, the date specified by the [RE] as the date of termination of the Project in a notice given to Growers, such date being at least 3 months after the notice is given; and

(c) the date on which the Project terminates in accordance with another provision of this constitution or by law.[21]

47 Following termination, the RE is required to realise the Assets and may distribute the Assets to the Growers in kind.

The Grower Leases, Preparation & Planting and Maintenance Agreements

48 Each Grower entered into a Lease Agreement, Preparation & Planting Agreement and Maintenance Agreement. Under the leases WFL is the lessor and the Grower is the lessee. With respect to the Lease Agreement, the leased land is the relevant number of hectares subscribed for by the Grower, the rental according with the amount prescribed in the relevant prospectus. The Preparation & Planting Agreement required WFL to undertake site preparation and development works, including 'surveyor's fees in field work, setting out firebreaks and access ways'. The Maintenance Agreement required establishment work, including construction and maintenance of access roads and firebreaks together with other general maintenance.

49 Access roads and firebreaks are situated on the Non-leased land.

WFL's Australian Financial Services licence, the Forestry Right Agreement and the Forest Property Agreement

50 WFL held an Australian Financial Services licence ('AFSL'), which authorised it to operate the Scheme and other schemes. The license required WFL to register in the name of the member, licensee or custodian any interest which conferred a right to use the land on which the primary production occurred in the operation of any of the schemes. In this context, WFL entered into two agreements with WFIM - a Forestry Right Agreement (which applied to land located in New South Wales) and a Forest Property Agreement (which applied to Victorian land).

51 The Forestry Right Agreement was entered into on 7 October 2004 and was made between WFL (as grantor) and WFIM (as grantee). The agreement recites that WFIM enters into the agreement on behalf of the growers, being members of one or more managed investment schemes operated by WFL. The agreement provides that WFL grants the 'Forestry Right' to WFIM. So far as relevant to this case, 'Forestry Right' is essentially defined to mean an interest in the land which is the subject of the agreement entitling WFIM to enter and establish, maintain and harvest trees and to construct and use such buildings, works and facilities as may be necessary for this purpose. Primary submitted that this was a clear indication that what was intended and contemplated by the agreement was considerable activity not only on the Leased land but also on the Non-leased land.

52 In the agreement, the 'land' is described as 'the allotments or plantation lots numbered and set out on the Plan described in Annexure A, and which are part of the title [being the whole of the land described in the certificates of title as contained in Annexure A]'. Annexure A is in two parts. The first part is in table format. By way of example, entries for some of the properties in the table read:

The whole of the land The whole of the land The whole of the land The whole of the land The whole of the land The whole of the land The whole of the land

1st July 1996 1st July 1996 1st July 1996 1st July 1996 1st July 1996 1st July 1996 1st July 1996

25 years 25 years 25 years 25 years 25 years 25 years 25 years

53 The second part of Annexure A to the agreement comprises maps with numbered allotments marked on them. An example of one of the maps is Attachment B to these reasons.

54 The parties to the Forestry Right Agreement acknowledged that the grower leases (being leases entered into between WFL and growers in any WFL scheme) contained rights and obligations between the parties in relation to the land (as defined). Those rights were acknowledged to include the right to enter and use that land in connection with the forestry right. WFIM was prohibited from creating or allowing to exist in favour of any other person a security interest over the forestry right.

55 The agreement contemplated that WFL may cease to be the registered proprietor of the land, in which case it was to be released from its obligations.

56 The agreement also gave WFL power to create any one or more security interests over the land subject to the agreement and the terms of the grower leases. The Liquidators contended that this was inconsistent with the Land being scheme property. However, I do not think that this is so. Subject to any restriction imposed on an RE by the constitution, the RE would likely have power to mortgage assets for the purposes of the scheme and for the benefit of the investors.

57 Clause 10.5 of the Forestry Right Agreement provided:

Manager's performance

The parties acknowledge that the "Manager" (as that term is defined in the relevant Scheme Constitution [that is, WFL as RE]) is required to:

(a) discharge the Grantee's obligations under this Agreement; and

(b) enforce the Grantee's rights under this Agreement,

in accordance with the relevant Scheme Constitution.

58 At the time this agreement was entered into, WFL was both the grantor under it as well as being the Manager (which is defined in the Constitution as the RE for the Project).

59 Under the Forestry Right Agreement, the parties agreed to enter into a transfer form in conformity with the agreement and to register that form. In this regard, registered transfers creating a forestry right were registered on the New South Wales certificates of title. WFL is described as the transferor and WFIM as the transferee. The transfers appear to relate to the whole of the Land in New South Wales (not just the leased hectares) because they provide that the forestry right is an interest in the land identified in the relevant certificates of title (referred to as the 'servient tenement'):

to enter the Land [servient tenement] and establish, maintain and harvest one or more crop or crops of trees on the Land [servient tenement] and to construct and use such buildings, works and facilities as may be necessary or convenient to enable the Grantee to establish, maintain and harvest such crop or crops ...

60 The title particulars for Woolison are included in the description of the servient tenement. This is in contrast to the entry for Woolison in Annexure A to the Forestry Right Agreement which listed plantation numbers 1-184 rather than stating that the land was the whole of the land.[22] The allotment diagram for Woolison which is part of Annexure A to the Forestry Right Agreement, indicates that there are only 184 allotments on that plantation and that the balance of the Woolison land in the certificates of title is predominantly comprised of heavily treed areas. Primary submitted that the registered transfer shows that the intention was that the forestry right was granted in respect of the whole of the Woolison land as required by WFL's AFSL, not just in respect of plantation allotments 1-184.

61 Primary submitted that the Forestry Right Agreement should be construed as applying to all of the Land in New South Wales, not just to the Leased land in that State. Primary contended that the agreement should be interpreted consistently with the usual rules of contractual interpretation. Notably, particular terms should be construed in the context of the agreement as a whole. This, Primary submitted, would include the references to the expression 'whole of the land' in the table in the Annexure.

62 The Forestry Right Agreement must be construed using an objective approach to ascertain the intention of the parties as they have expressed it (not their subjective intention).[23] In my view, it is clear that the land which is the subject of the Forestry Right Agreement is the allotments on the maps, which are only part of the land described in the table rather than the whole of that land. That is the plain meaning of the words used to define the land. Other than in respect of Woolison, the only place where the allotments are numbered is on the maps. Had it been the intention of the parties to make the whole of the land the subject of the agreement, there would have been no need to include the maps. It would have been sufficient to include the table with the title particulars alone. Conversely, it was necessary to include the maps if the land was only part of the certificates of title. Further, in essence, Primary's submissions require the reader to ignore the words 'and which are part of'[24] the certificates of title. Those words must have some meaning and, in my view, they restrict the scope of the land in respect of which the forestry right operates.

63 The Liquidators sought to demonstrate that only the Leased land was subject to any forestry rights by reference to the Preparation & Planting, Maintenance and Lease agreements and the Constitution, all of which relate to the Growers' leased hectares only. In response, Primary urged the Court to construe particular terms in the context of the agreements as a whole and to apply the principal of interpretation that where there are inconsistencies, effect must be given to the objective intention of the parties as gathered from the instrument as a whole. In the context of the agreements as a whole, Primary observed that they expressly refer to roads and firebreaks, which are on the Non-leased land and the table in Annexure A to the Forestry Right Agreement refers to the 'whole of the land'. It seems to me that what is called for is not construction of the agreements as a whole, but rather construction of the Forestry Right Agreement as a whole. That agreement does not contain any inconsistency and the application of the principles of construction where there are inconsistencies does not arise. For the same reason, I do not think that the registered transfers aid in the construction of the Forestry Right Agreement. As the Liquidators submitted, the recordings on the titles do not determine the ambit of WFIM's interest under the Forestry Right Agreement. It ought also not be forgotten that the Forestry Right Agreement applies not only to the land used in the Scheme but also to land used in other WFL schemes. It is therefore understandable that the parties would limit the forestry right to the land leased to the growers in the various schemes.

64 Primary sought to rely on Australian Broadcasting Commission v Australasian Performing Right Association Ltd[25] as authority for its proposition that the agreements must be construed as a whole. However, that decision only concerned the construction of one agreement, not the construction of multiple agreements as a whole. The passage relied upon by Primary from the reasons of Gibbs J is as follows:

It is trite law that the primary duty of a court in construing a written contract is to endeavour to discover the intention of the parties from the words of the instrument in which the contract is embodied. Of course the whole of the instrument has to be considered, since the meaning of any one part of it may be revealed by other parts, and the words of every clause must if possible be construed so as to render them all harmonious one with another. If the words used are unambiguous the court must give effect to them, notwithstanding that the result may appear capricious or unreasonable, and notwithstanding that it may be guessed or suspected that the parties intended something different. The court has no power to remake or amend a contract for the purpose of avoiding a result which is considered to be inconvenient or unjust. On the other hand, if the language is open to two constructions, that will be preferred which will avoid consequences which appear to be capricious, unreasonable, inconvenient or unjust, 'even though the construction adopted is not the most obvious, or the most grammatically accurate', to use the words from earlier authority cited in Locke v. Dunlop which, although spoken in relation to a will, are applicable to the construction of written instruments generally; see also Bottomley's Case. Further, it will be permissible to depart from the ordinary meaning of the words of one provision so far as is necessary to avoid an inconsistency between that provision and the rest of the instrument. Finally, the statement of Lord Wright in Hillas & Co Ltd. v. Arcos Ltd., that the court should construe commercial contracts "fairly and broadly, without being too astute or subtle in finding defects", should not, in my opinion, be understood as limited to documents drawn by businessmen for themselves and without legal assistance.[26]

65 The wider proposition contended for by Primary does not find foundation in that passage.

66 I will next consider the Forest Property Agreement (which applied to Victorian land and which is registered on the relevant certificates of title). That agreement was entered into by WFL as grantor and WFIM (on behalf of growers) as grantee. Like the Forestry Right Agreement, the Forest Property Agreement applied not just to land used in the Scheme, but also to land in any schemes where WFL was the RE. The reference to growers, is to Growers in the Scheme and growers in other WFL schemes. The parties acknowledged that the agreement was entered into under the Forestry Rights Act 1996 (Vic) and was intended to be a forest property agreement under that Act. Section 5 of that Act set out the parameters for such an agreement and provided:

An owner of land may enter into an agreement with a person -

(a) to grant to that person a right to -

(i) plant, maintain and harvest forest property on that land; or

(ii) maintain and harvest forest property planted on that land or derived from forest property planted on that land; and

(b) to vest the ownership of the forest property in that person; and

(c) subject to the agreement, to permit the person -

(i) to enter the land which is subject to the agreement; and

(ii) to carry out any works which are necessary for the purposes of planting, maintaining or harvesting the forest property.

67 'Forest Property' is essentially defined to be the trees and their products.

68 WFL and WFIM acknowledged in the agreement that the grower leases contain rights and obligations between the parties in relation to the 'Land' including the right to enter and use it or the relevant part of it in connection with the Forestry Right. 'Forestry Right' is defined to mean the right to ownership of the forest property.

69 Primary submitted that the parties intended the agreement to fall within s 5(1)(c)(ii). As Primary noted, it is necessary to use the Non-leased land to perform plantation maintenance works and harvesting. The Liquidators submitted that Primary's submission overlooks that s 5(1)(c) is expressed to be 'subject to the [Forest Property Agreement]'. I agree. Whilst the Forest Property Agreement specifically provided that WFL vested the Forest Property in WFIM (as contemplated by s 5(1)(b)), it did not grant the rights contemplated by s 5(1)(c). In my view, the agreement is limited to the rights specified in it.

70 The Forest Property Agreement defined the land as 'the allotments or plantation lots set out on the Plans in Annexure B, and which are part of the Title and as described in Annexure A of this Agreement'. Annexure A is the same table format as the first part of the Annexure to the Forestry Right Agreement. However, in this table, under the heading 'Plantation Numbers' the words 'the whole of the land' appear[27] and the column headed 'Allotments' lists allotment numbers. For example, one of the entries reads as follows:

Interests issued under prospectus Prospectus No 2 dated 14 February 1990 and Prospectus No 3 dated 28 May 1991

71 Annexure B (the plans) is missing from the Forest Property Agreement. Primary submitted that the key elements of the definition of land are the cross references to the annexures and that the land can comprise allotments or plantation lots. It contended that the right granted under the Forest Property Agreement is a right in relation to the whole of the Land not just the Leased land.

72 I do not accept that submission. Again it seems to me that the proper construction of the definition of 'land' is that it is the land leased to the growers not the whole of the land contained in the relevant certificates of title. Again, the interpretation contended for by Primary ignores the words 'which are part of the Title.' What work are those words to do if not to limit the scope of the land?

73 Finally, the Forest Property Agreement provided that if WFL ceased to be the registered proprietor, it was to be released from its obligations with the new registered proprietor to become the 'grantor' for the purposes of the agreement. WFL was permitted to create a security interest over the land (as defined in the agreement) or the title (defined to be the whole of the land in the titles set out in Annexure A) but subject to the terms of the agreement and the grower leases.

74 Part of the Land was used for other schemes as well as the Scheme. Some of the Land in the Cabanandra plantation was leased as part of a separate scheme to Anthony Paul Spielvogel, who is the former marketing manager of WFL. That leasehold is landlocked by hectares leased to the Growers in the Scheme. In addition, some of the Delegate 5 plantation (which is part of the Land) is leased to growers in a separate scheme known as the Willmott Forests Project scheme. Whilst that scheme is in the process of being wound up, the winding up cannot be completed until the growers' interests in the trees on that plantation cease. The leases to those Willmott Forests Project growers have not been terminated and those growers retain an interest in the trees on that plantation. There are also some houses (two occupied by tenants and the other three by squatters), sheds and huts on other parts of the Non-leased land. Some of the Non-leased land is also used for access, firebreaks and the like in respect of Mr Spielvogel's leasehold and the leaseholds of the Willmott Forests Project growers on Delegate 5.

75 So far as relevant for this case, a 'managed investment scheme' is defined in the Corporations Act as:

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 daytoday control over the operation of the scheme (whether or not they have the right to be consulted or to give directions);

76 The Corporations Act does not include a definition of 'scheme'. However, in Australian Securities and Investments Commission v Takaran Pty Ltd,[28] Barrett J (as he then was) said:

The essence of a 'scheme' is a coherent and defined purpose, in the form of a 'programme' or 'plan of action', coupled with a series of steps or course of conduct to effectuate the purpose and pursue the programme or plan. In some cases, the scope of the scheme will readily be gathered from some constitutive document in the nature of a blueprint setting out all relevant matters. In others, there may be no writing or such as there is may tell only part of the story leaving the remainder to be supplied by necessary implication from all the circumstances.[29]

77 Section 601FC(2) of the Corporations Act provides that the RE holds scheme property on trust for scheme members. 'Scheme property' is defined to mean:

(a) contributions of money or money's worth to the scheme; and

(b) money that forms part of the scheme property under provisions of this Act or the ASIC Act; and

(c) money borrowed or raised by the responsible entity for the purposes of the scheme; and

(d) property acquired, directly or indirectly, with, or with the proceeds of, contributions or money referred to in paragraph (a), (b) or (c); and

(e) income and property derived, directly or indirectly, from contributions, money or property referred to in paragraph (a), (b), (c) or (d).[30]

78 The statutory provisions contemplate that from time to time an RE will be replaced. The legislative framework seeks to facilitate the smooth transition[31] from the outgoing RE to the replacement RE so that the investors in the scheme and those dealing with the RE are not adversely affected by the change. To that end, ss 601FS and 601FT are pivotal. Section 601FS provides:

(1) If the responsible entity of a registered scheme changes, the rights, obligations and liabilities of the former responsible entity in relation to the scheme become rights, obligations and liabilities of the new responsible entity.

(2) Despite subsection (1), the following rights and liabilities remain rights and liabilities of the former responsible entity:

(a) any right of the former responsible entity to be paid fees for the performance of its functions before it ceased to be the responsible entity; and

(b) any right of the former responsible entity to be indemnified for expenses it incurred before it ceased to be the responsible entity; and

(c) any right, obligation or liability that the former responsible entity had as a member of the scheme; and

(d) any liability for which the former responsible entity could not have been indemnified out of the scheme property if it had remained the scheme's responsible entity.

(1) If the responsible entity of a registered scheme changes, a document:

(a) to which the former responsible entity is a party, in which a reference is made to the former responsible entity, or under which the former responsible entity has acquired or incurred a right, obligation or liability, or might have acquired or incurred a right, obligation or liability if it had remained the responsible entity; and

(b) that is capable of having effect after the change;

has effect as if the new responsible entity (and not the former responsible entity) were a party to it, were referred to in it or had or might have acquired or incurred the right, obligation or liability under it.

(2) Subsection (1) does not apply to a right, obligation or liability that remains a right, obligation or liability of the former responsible entity because of subsection 601FS(2).

80 Sections 601FS and 601FT only apply to ongoing rights, obligations and liabilities following the appointment of an incoming RE.[32]

81 There have been many cases dealing with the effect of the managed investment scheme legislative provisions since their introduction in 1998. The issues that have been raised for determination have been many and varied. None of them are the same as the issues in this case, despite the fact that in recent years, many of the decided cases concern forestry schemes that have collapsed. Nevertheless, it is useful to review a number of the authorities and to extrapolate from them the principles which may be applied in this case.

82 Re Investa Properties Ltd,[33] concerned a prescribed interest scheme which was converted to a managed investment scheme with Westpac Banking Corporation (which had been the Manager) becoming the RE. Prior to conversion, the trustee under the old scheme gave a charge over the trust assets. Section 264 of the Corporations Law required a company that acquired property that was subject to a charge to lodge a form with ASIC within 45 days of the acquisition. Upon taking over the combined role of RE, Westpac did not file that notice within the prescribed time. Subsequently, Westpac was replaced as RE by Investa Properties Ltd. Investa did not file any notice with ASIC. Westpac and Investa sought orders to regularise the position.

83 The first question for determination was whether the effect of ss 601FS(1), 601FT(1) and 601FC(2) meant that the incoming RE had 'acquire[d] property that is subject to a charge.' Barrett J (as he then was) observed:

Sections 601FS(1) and 601FT(1) are drafted in a particularly economical way. They appear intended to cause an incoming responsible entity to step into the shoes of its predecessor .... Yet nowhere does one find in those two sections any reference to property. There is a reference to 'rights', being rights 'in relation to the scheme', and there can be no doubt that certain 'rights' (although not all) are property. The sections do not seem to effect a form of statutory vesting or assignment of property generally in such a way that the incoming responsible entity 'acquires property that is subject to a charge' (as mentioned in s 264) except, perhaps, to the extent that the subject matter of the charge is a species of property which clearly involves no more than a 'right'. An example might be the kind of property involved in a charge made registrable by s 262(1)(f) referring to 'a charge on a book debt'. A debt as a chose in action falls quite comfortably within the concept of 'right'. But even then, there is a question whether a chose in action forming part of the assets of a scheme is a right 'in relation to the scheme'. These last words are perhaps intended to cover only rights vis à vis parties such as members of the scheme, being rights arising from or forming part of the matrix of legal relationships making up the scheme, including rights derived from the scheme's constitutional documents. [34]

84 His Honour did not have to resolve his doubts about these sections because the effect of s 601FC(2) was that once an incoming RE took up the role, it held the scheme property on trust and thus that property had been 'acquired' for the purposes of s 264 of the Corporations Law.[35] Primary observed that what Barrett J said about the effect of ss 601FS and 601FT is obiter dicta and submitted that the language used by his Honour is tentative and should be limited to the circumstances of that case where the court was dealing with rights under a charge.

85 In Mier v FN Management Pty Ltd,[36] the Queensland Court of Appeal considered whether a property that was leased to the scheme operator (FN Management) was scheme property. The scheme concerned a village resort with the members of the scheme owning accommodation units in the resort which were used for short term occupation. However, the reception area, shop, restaurant, office and manager's residence were situated on property owned by the Nasons and leased to FN Management. The Nasons were directors and shareholders of FN Management. As part of the winding up of the scheme, the trial judge had ordered that the liquidators were at liberty to sell the Nasons' property free of all leases. On appeal, Keane JA (as he then was) considered the scheme documents to ascertain whether the effect of the arrangements was that the Nasons and FN Management had contributed their interests in the property to the scheme. His Honour held that whilst the property may have been used for the purposes of the scheme, it was not made over, or contributed as scheme property:

FN Management and the Nasons had no more 'contributed' their respective interests in lot 99 [the Nasons' property] to the scheme as scheme property than the lot owners had contributed the fee simple estate in their lots to the scheme. What was contributed to the scheme by the parties to it was the use of their lots under the letting appointment deed while the scheme remained in operation, not some greater interest such as a leasehold or freehold interest. The winding up of the scheme meant the end of its operation by FN Management. The lot owners had originally contributed the right to rent out their lots to the scheme in return for the payment of part of the rental fees that were to be generated as a result. The lot owners did not make their contributions in return for the grant of an interest in [the Nasons' property], nor was lot 99 [the Nasons' property] purchased as a result of any contributions that were made by the lot owners. It is difficult to see how the lot owners could have claimed any entitlement to the proceeds of the sale which has been ordered if that sale were allowed to proceed.[37]

86 In Shepard v Downey,[38] Judd J considered whether trees in forestry managed investment schemes formed part of the scheme property. The issue arose in the context of whether the schemes ought be wound up. Environinvest Ltd acted as RE and had financially collapsed.

87 Although the scheme documents attempted to isolate the trees from the definition of scheme property, his Honour observed that it was the Corporations Act which defined scheme property. As such, he concluded that the trees were scheme property for to remove them from regulation as scheme property would emasculate the legislation by stripping the schemes of effective regulation.[39] On appeal,[40] Dodds-Streeton, Mandie JJA and Byrne AJA said:

As the primary judge observed this scheme is more than its constitution. It is a broader concept defined by the scheme documents, the constitution, and the management agreements. In terms of the statutory definition, it includes the contributions which the growers have made and which are to be pooled and used to produce financial or proprietary benefits.

The statutory definition of scheme property in s 9 reflects this definition. It includes these contributions to the scheme, the money which forms part of the scheme under the Act or the ASIC Act and, importantly for present purposes, it includes 'property acquired directly or indirectly, with, or with the proceeds of these contributions'.[41]

88 A little later in the judgment, their Honours said:

We see no basis for doubt that the application moneys held by the responsible entity in the Application Fund and the proceeds held by the responsible entity in the Proceeds Fund are scheme property. Equally, we see no reason to doubt that the scheme property is not limited to that property. Accordingly, we agree with the primary judge that, for the purposes of the winding up at least, the scheme property comprises the property which falls within the statutory definition. It is that property which is to be dealt with in accordance with cl 34 where the court makes a winding up order under s 601ND.

His Honour then concluded that, since the trees were purchased and planted using the contributions of investors, they are 'property acquired directly or indirectly with, or with the proceeds of contributions'. Accordingly, they are part of scheme property and the declaration set out above was made. In the context of the debate between the investors and ASIC, on the one hand, and the receivers and managers and EIL [Environinvest], on the other, as to whether the trees were part of the property to be wound up, his Honour was correct in concluding that they did.

The argument upon appeal, however, exposed a difficulty. It was that the trees, when planted on the leased land, become part of the land. The rights of the investors and, indeed, those of the scheme liquidator in respect of the trees, must accommodate the fact that, when planted, these rights were less than the rights of ownership. [42]

89 The land in that case was registered in the name of STY (Afforestation) Pty Ltd (an Environinvest related entity) and was leased to investors with its consent. The lease provided that on request, STY would 'purchase the lessee's right title and interest in the trees.' The Court of Appeal said:

Accordingly, it was said that the scheme property includes, not ownership of the trees, but rather the rights with respect to them, which rights the scheme acquired using the contributions. Likewise, it includes the like rights with respect to the leases themselves. We think that this is correct. What these rights are in a given case we are unable to determine. Mr Shepard's affidavit describes the complexity of the ... scheme and the projects which are included in it. We mention by way of example that the owners of the allotments differ in differing projects within the scheme.[43]

90 The Court of Appeal held that the scheme documents did not vest legal title in the trees in the investors. Rather, 'the investors have an interest in the trees and rights and obligations with respect to them.'[44] The rights formed part of the scheme property. Their Honours concluded:

We return now to the terms of the declaration. It will be apparent that we consider that the relevant part of the scheme property is not the trees themselves; it is the rights of the parties to the scheme with respect to those trees. Accordingly, read literally, his Honour was not correct to express the declaration in the terms that the 'trees ... are part of scheme property'. Nevertheless, it is abundantly clear that in formulating the declaration, his Honour had in mind, not the trees, but rights over and interests in the trees. This is apparent from the manner in which the question arose in the trial below and from his Honour's judgment.

It is trite to assert that ownership is a bundle of rights in respect of a thing. This concept underlies the definition of 'property' in s 9 of the Act. In this case these rights are those conferred upon investors by the scheme documents. We would therefore construe his Honour's declaration as the equivalent of the following:

The rights over and interests in all trees which were acquired with the proceeds of contributions to the Primary Yield Eucalypt Project ARSN 093 575 270 ('the PYEP scheme') standing on allotments leased by growers investing in the PYEP scheme are part of scheme property for the purposes of the winding up of the PYEP scheme and may be dealt with and sold by the scheme liquidator as part of the said winding up in accordance with the constitution of the PYEP scheme.

We would suppose that the parties understood this to be the case leaving it to the court to work out on a case by case basis what those rights and interests are. [45]

91 The Liquidators submitted that the Court of Appeal was dealing with a situation quite different from that here. In that case the issue was as to ownership and rights in respect of the trees. Here they submitted that the Land is not a right of the RE. Rather, the Land belongs to WFL and stands outside the Scheme.

92 Primary submitted that Capelli v Shepard[46] is authority for the proposition that it is possible to have rights that are part of the scheme, which are less than the rights of ownership. Whilst that case concerned the distinction between ownership and rights in respect of trees, Primary contends the same applies in relation to any property, including land. It observed that at issue in that case was that the trees (whilst growing) became part of the land and in that context, the Court of Appeal distinguished between ownership of the trees and rights in respect of them. I agree with that analysis.

93 In Treecorp Australia Ltd (in liq) v Dwyer,[47] ('Treecorp') Gordon J was required to consider whether funds in a bank account which had emanated from investors were scheme property. The RE (TAL) and its agent (TL) had both been placed into liquidation. The constitution provided that TAL agreed that a plantation services agreement would include obligations on TL to pay for and carry out the obligations of TAL under the maintenance agreements to be entered into with growers and for TL to provide security for performance of those obligations. TL did provide a charge in favour of TAL over debts created by deposits, interest and other rights in relation to a specified bank account. It was common ground that the funds in the bank account had been sourced by TAL from an 'Application Fund'. Under the constitution, investors' application fees were paid into the Application Fund and were held by TAL as bare trustee. When certain conditions were satisfied, those funds were released to TAL. Gordon J held that the funds in the bank account were not scheme property because they did not fall within the definition in s 9 of the Corporations Act. Her Honour found that once the funds were paid from the Application Fund, they ceased to be scheme property with the payment being a fee for the performance by TAL of its functions.[48] Gordon J said:

What then is the position here? If 'contributions' are understood, as it must be, as contributions made by members of the managed investment scheme, neither the rights of the chargee over the Charged Property nor the Charged Property itself falls within any of the 5 limbs of 'scheme property' in s 9 of the Act. They are not (a) contributions of money or money's worth to the scheme, (b) money that forms part of the scheme property under provisions of the Act or the ASIC Act, (c) money borrowed or raised by the responsible entity for the purposes of the scheme, (d) property acquired, directly or indirectly, with, or with the proceeds of, contributions or money referred to in paragraph (a), (b), or (c), or (e) income and property derived, directly or indirectly, from contributions, money or property referred to in paragraph (a), (b), (c) or (d).[49]

94 At the time of her Honour's decision, the scheme did not have a current RE. However, the charge remained on foot. Gordon J stated:

Under the Deed of Charge, the Responsible Entity (TAL) acquired rights as chargee under the Charge as the Responsible Entity. Those rights continue to have effect and if a new Responsible Entity was appointed, the new Responsible Entity would be taken to be a party to the Deed and to have the same rights as the former Responsible Entity under the Charge: s 601FT. Significantly, the reference to "a right, obligation or liability" in s 601FT is not limited to or identified by reference to "scheme property" as that term is defined in s 9 of the Act. That is not surprising. There will often be, as in this case, contractual arrangements entered into by the responsible entity for the benefit of the scheme which will not constitute scheme property. [50]

95 In Huntley Management Ltd v Timbercorp Securities Ltd,[51] ('Huntley') Rares J considered the effect of ss 601FS(1) and 601FT(1) when Huntley Management Ltd replaced Timbercorp Securities Ltd as the RE of a number of managed investment schemes. The schemes concerned the growing and harvesting of mangoes. His Honour stated that ss 601FS(1) and 601FT(1) 'provide a form of statutory novation of the contracts and other engagements to which the previous responsible entity was a party, in favour of the new one.'[52] In that case, Timbercorp took leases of land 'in its own capacity' from Mango Land Pty Ltd. The lease provided that it did not form part of the scheme property. Timbercorp also entered into a management agreement, marketing deed and licence agreement (in respect of the land) with each investor. Mango Land consented to the investor licence agreements. Rares J noted that many of the important rights, obligations and liabilities of Timbercorp under the three agreements were expressed to be enjoyed, rendered or performed by it 'in its personal capacity'. The question was which (if any) of those rights, obligations and liabilities became Huntley's by force of ss 601FS(1) and 601FT(1).

96 Having commented that in Re Investa Properties Ltd,[53] Barrett J did not need to decide the precise operation of ss 601FS and 601FT, Rares J said:

I agree with Barrett J's initial description of those sections as enabling the new responsible entity to step into the shoes of the old. Scheme property can be held in the name of a responsible entity in accordance with the provisions of the scheme. A trustee always has rights, obligations and liabilities, defined by the terms of the trust, in respect of trust property. I am of opinion that Div 3 of Pt 5C.2 provides for an automatic statutory novation in favour of the new responsible entity in respect of all rights, obligations and liabilities of its predecessor. The novation also applies to all contracts and any other documents to which the former responsible entity was a party (ss 601FS(1), 601FT(1)). The evident purpose of Div 3 is to facilitate a change of responsible entity occurring in such a way that the conduct of the scheme is not disrupted. Of course, ss 601FS(2) and 601FT(2) recognise that the former responsible entity retains any rights, obligations and liabilities that had accrued, or applied, to it prior to the change. The change in responsible entity becomes effective when ASIC's records name the new responsible entity in place of the former under s 601FJ. However, any property right requiring registration, such as in Torrens title land, held by the former responsible entity will vest in equity in the new responsible entity immediately on the creation of the new ASIC record by force of Div 3 of Pt 5C.2, but will only vest in law when it is registered (see s 1336(3)).

It is vital that the words 'rights, obligations and liabilities' in Div 3 of Pt 5C.2 be given a broad construction so as to achieve the evident legislative purpose of facilitating an immediate and seamless change of the responsible entity of a scheme whenever ASIC records the new entity's name in its record of a registered scheme.[54]

97 His Honour held that the words 'in relation to' in s 601FS(1) are of wide and general import and should not be read down in the absence of compelling reason to do so. He continued:

As Lindgren J noted, however, the rights, obligations and liabilities of the former responsible entity to which each of ss 601FS(1) and 601FT(1) apply, are impliedly limited to those capable of having an ongoing operation after the change in responsible entity: Re Huntley Management Ltd; Australian Olive Holdings Pty Ltd v Huntley Management Ltd; (2009) 76 ACSR 256 at [85].

Ordinarily, the scheme would give the responsible entity a legal, and possibly a larger, right to hold scheme property, such as land, in its name. But, by force of ss 601FJ, 601FS(1) and 601FT(1) that right necessarily passes to the new responsible entity on a change becoming effective. In most cases one could expect that control and ownership of scheme property finds its ultimate source in the scheme constitution. Ordinarily, that will identify the basis on which scheme property is held by the responsible entity.[55]

98 Rares J was of the opinion that the sections constitute the means by which rights held 'and rights "in relation to", scheme property pass to and vest in the new' RE and they novate obligations and liabilities of the outgoing RE in relation to scheme property in the new RE.[56] He observed that the statutory scheme 'is clearly intended to apply to a change of, and effect a transfer between, responsible entities in all situations so as to ensure that the incoming one has the fullest and most effective control of the whole of the scheme and scheme property at the instant that s 601FJ gives effect to the change.'[57]

99 His Honour drew on the condition imposed in Timbercorp's AFSL and said:

[t]he responsible entity had to protect the interests of the investors in the 2005 project and comply with its Australian financial services licence by lodging for registration in its name beneficially the leases of the land on which the mangoes would be grown under clause 9.4 of the constitution. That had the consequence that the leasehold interest was held as scheme property by whomever was the responsible entity. This follows from the licence condition that the leasehold be held by Timbercorp 'beneficially in the course of and in accordance with its duties as responsible entity' coupled with Timbercorp's obligations under clause 9.4, and power to lease under clause 11(l) of the constitution. The leasehold interest was property 'in relation to the scheme'. The scheme could not operate without it. Timbercorp held all its rights, and had obligations and liabilities under the lease 'in relation to the scheme' for the purposes of ss 601FS and 601FT.[58]

100 Rares J also referred to the practical difficulties if Huntley did not replace Timbercorp in respect of the three agreements entered into with investors:

If Timbercorp were entitled to remain in its position as lessee or continue to enjoy rights that it held under the three investor agreements 'in its personal capacity' after it had been replaced as the responsible entity of the 2005 project, the investors would be tied to it despite it no longer being in its control role in the scheme. Instead Timbercorp would occupy a personal position of critical importance to the scheme's future operations free of its statutory and scheme duties as responsible entity and the investors would have to deal with and pay both it and a new responsible entity. It would create a commercially inconvenient result if the words 'in its personal capacity' in clause 1.7 of the licence agreement entitled Timbercorp to retain its status of beneficial owner of the leaseholds and other rights once it had ceased to be the responsible entity: cf Zhu v Treasurer of NSW; [2004] HCA 56; (2004) 218 CLR 530 at [82] per Gleeson CJ, Gummow, Kirby, Callinan and Heydon JJ. Such a result was not contemplated in the product disclosure statement and serves no good purpose for the ongoing operation of the scheme. Indeed, Timbercorp would hold the benefit of the lease without being personally liable to pay any rent other than as a mere conduit of licence fees payable to it by the investors. Those licence fees were contributions to the scheme so that the leaseholds could be held in order that mangoes could be grown for sale. The leases were thus scheme property.[59]

The Parliament employed very broad concepts in Div 3 of Pt 5C.2 in order to protect the interests of members of schemes. That is why the former responsible entity is made subject to a plenary novation of all its rights, obligations and liabilities in relation to the scheme, regardless of any nomination by it of some other capacity. The touchstone of the statutory novation is that provided by the broad expression 'in relation to the scheme'. Once a right, obligation or liability of the corporation that was the former responsible entity or a document to which it was party, can be seen to have the character of being 'in relation to the scheme', it is novated to the new responsible entity by force of ss 601FS and 601FT. And, the Parliament allowed a limited carve out from that sweeping novation so as to provide for the limited but exhaustive range of rights, obligations and liabilities of the former responsible entity found in ss 601FS(2) and 601FT(2): see too Syncap 51 ACSR at 232 [46].[60]

102 In the recent case of TFML Ltd v MacarthurCook Fund Management Limited (TFML Ltd),[61] the New South Wales Court of Appeal considered whether an incoming RE was liable to pay damages where the outgoing trustee and RE (RFML) had breached obligations under agreements entered into with MacarthurCook. The managed investment scheme was known as the Reed Property Trust. The constitution creating that trust recognised that RFML may incur liabilities and acquire rights other than in the performance of the trust and that RFML may be interested in any contract which involved the trust in a capacity other than as trustee. The relevant obligations under the agreements with MacarthurCook were expressed to be undertaken by RFML in its personal capacity. Meagher JA (with whom both McColl and Mcfarlan JJA agreed) observed:

In the description of the parties to the agreement a distinction was made between RFML 'in its capacity as responsible entity' and 'in its personal capacity'. Each of those references is not to be understood as an attempt to identify different legal personalities, as was suggested by the primary judge. Each is to be understood as a statement that in undertaking a particular obligation or receiving the benefit of a particular promise, RFML was purporting to do so as trustee in the performance of the trust or in some other capacity.[62]

103 His Honour observed that the obligations which had been breached were not obligations which, by their nature, had to be undertaken by RFML as trustee. Each could have been undertaken by a third party. Meagher JA continued:

MacarthurCook's argument that the description 'in its personal capacity' means in its capacity as trustee in the performance of the trust but with the benefit of recourse to non-trust assets must be rejected. The reference to 'capacity' in this context is not to liability but to the position or relation by reference to which the obligation is undertaken. The adjective 'personal' indicates that the obligation was not undertaken by RFML in its position as trustee in the discharge of the trust. It follows that it was not entitled to an indemnity under ... the constitution in respect of any liability for breach cl 2.6 [of the agreements]. That has the consequence that each of those liabilities was within s 601FS(2)(d). For that reason each remained with RFML. The primary judge erred in concluding otherwise. It is unnecessary to consider whether those liabilities were 'in relation to the scheme' within s 601FS(1).[63]

104 The Liquidators submitted that this decision casts doubt on the correctness of the decision of Rares J in Huntley.[64] They submitted that that case is wrong and ought not be followed. Alternatively they submitted that it is clear that his Honour was dealing with leasehold which is personal property not real property and that his reference to registration must be understood in context as registration of the lease.

105 Primary submitted that in TFML Ltd,[65] the New South Wales Court of Appeal was analysing what rights were conferred and how they were to be construed. Primary submitted that that is exactly what Rares J did in Huntley.[66] He looked beyond the expression that was used in the material 'in its personal capacity' and looked at what the rights actually were in fact and determined that they were rights being exercised as RE not in a personal capacity.

106 In Re Willmott Forests (No.2)[67] ('Willmott (No 2)'), Davies J had to consider Willmott schemes where WFL had not been replaced as RE. Some of the land on which the schemes were conducted was leased to WFL and some was owned by it. The liquidators obtained bids for the land and trees unencumbered by the schemes. They entered into sale contracts which were conditional upon them being able to give clear title to the land and trees. To satisfy this condition, the liquidators sought to terminate and disclaim the project documents that governed the scheme and they sought directions that they would be justified in doing so. The liquidators had a view about how the proceeds of sale should be apportioned, which in part depended upon whether the land was scheme property. The proposed apportionment of the proceeds was based on the view that only the trees were scheme property.

107 Davies J considered whether the freehold and leases should be taken to have been 'contributed' to the schemes by looking at the legal arrangements underpinning the schemes and the nature of the rights in, or to, the freehold and leases held by members of the schemes. As in this case, the schemes provided for investors to take a lease of land from WFL and to engage WFL to manage the forestry operations. Under the constitution, WFL was to use its best endeavours to create a forestry right to enter the land to establish, maintain and harvest a crop of trees. The schemes required an up-front payment for WFL's fees for the initial preparation and planting but no other fees were payable until harvest, at which time 2% of the gross sale proceeds were to be paid as rent and 7% were payable for management fees. Her Honour concluded:

Accordingly, whilst it is evident that WFL contributed to the use of its land for scheme purposes, WFL did not contribute its interest in the land, instead making the land available to the Growers by way of lease and by granting 'forestry rights' entitling Growers to establish, maintain and harvest a crop of trees on the land. This conclusion is supported by provisions in the Constitution.

Clause 6.7 of the Constitution provided:

Land Held Beneficially

6.7 All Land acquired by [WFL] for the purposes of the Project is held beneficially by [WFL] in the course of, and in accordance with, its duties as [RE] of the Project.

This is to be compared with clause 2 of the Constitution which provided that WFL, as RE, 'must hold the Assets on trust for Growers'. The term 'Assets' is defined by reference to interests in the project and means:

Assets: all the property, rights and income of the Project, but not any application money or property in respect of which Woodlots have not been issued.

The Constitution thus identifies the land separately from the scheme property, consistently with the duties on WFL as RE to ensure that scheme property is clearly identified as scheme property and held separately from property of the RE.[68]

108 The investors who opposed the liquidators' application ('WAG') relied on the decision of Rares J in Huntley.[69] In respect of the observations of Rares J about the terms of the RE's AFSL, Davies J said:

With respect to Rares J, it does not follow that an asset held by the RE must be scheme property because the licence condition requires the asset to be held by the RE 'beneficially in the course of and in accordance with [the RE's] obligations as RE'. The trust will be created either because property is 'scheme property' as defined or because the RE holds the property on trust for the members under principles of general law. Moreover, property does not become 'scheme property' as defined merely because the property is registered by the RE in its name 'beneficially' in accordance with the licence requirements. Or to put it another way, registration does not of its own force make property 'scheme property'. It is only if it is 'scheme property' as defined that s 601FC creates the statutory trust in respect of that property.

Moreover, in the present case, the terms of WFL's licence make it clear that the licence requirement does not have the effect in law contended by WAG. The licence requirement is that:

[T]he licensee must ... ensure (in relation to each scheme) that an instrument that confers the right, for the purpose of the scheme, to use the land on which any primary production will occur in the operation of the scheme, is lodged for registration, under State or Territory land titles law, in the name of: ...

(d) the licensee, either

(i) as trustee for the members; or

(ii) beneficially in the course of and in accordance with its duties as responsible entity.

The licence requirements recognise that land may be made available for the purposes of the scheme without becoming vested beneficially in the members. Properly understood, registration in the name of the RE 'beneficially in the course of and in accordance with its duties as responsible entity' means in this case no more than that the RE is subject to duties as RE in relation to that land. And, as the cases have held, not all property used in a scheme will be scheme property as defined.

Clause 6.7 of the constitutions and the Investment Deeds, which similarly provide that all land acquired by WFL for the purposes of the project is held beneficially by WFL in the course of, and in accordance with, its duties as RE, is to be understood in the same sense as the licence condition. Considered in context, the function served by clause 6.7 is to identify that the land is not scheme property and hence not part of the 'Assets' that WFL holds on trust for the members by WFL. Clause 6.7 does not operate to make all land acquired by WFL for the purposes of the project 'Assets' of the scheme, whether or not 'scheme property' as defined in s 9 of the Act.[70]

109 As to the observations of Rares J in Huntley[71] about the leases being essential to the operation of the schemes, Davies J noted that his Honour was not concerned with what was 'scheme property' but rather was only concerned with whether the rights, obligations and liabilities of the RE were statutorily novated by ss 601FS and 601FT to the incoming RE. Davies J said:

Critical to answering that question was whether the rights, obligations and liabilities of TSL [the outgoing RE] under the leases were rights, obligations and liabilities of TSL [the outgoing RE] 'in relation to the scheme' and it was in that context that Rares J observed that the rights enjoyed by TSL [the outgoing RE] as lessee of the land derived wholly and solely because the leases were essential to the scheme. This factor coupled with other factors led Rares J to conclude that the capacity in which TSL [the outgoing RE] entered into the leases was not in its personal capacity but as RE. The other factors to which Rares J had regard are not applicable in the present case and the case is distinguishable on its facts. No different conclusion is required to be reached on the facts of this case, having regard to the proper construction of the constituent documents. It may be that without the freehold and leasehold that WFL made available for use in the schemes, the schemes could not have operated. But that is not the test. This is not to take an artificial or restricted view as to what constitutes the scheme or the property over which WFL as RE had duties and obligations.[72]

110 Primary submitted that this was too narrow a view of the reasoning of Rares J. It also submitted that the factors in the present case are closer to those considered in Huntley[73] than in Willmott (No 2).[74] Further, whilst Primary accepted that the statutory test does not require regard to be had to the fact that the Scheme could not operate without the Non-leased land, nevertheless it submitted that this must inform a proper interpretation of the definition of scheme property and must inform the application of s 601FS in the same way that Rares J determined.

111 Davies J also considered whether a tracing exercise ought to be embarked upon to determine whether the land had been acquired or derived, directly or indirectly with contributions of money from the growers or from money borrowed or raised by the RE for the purposes of the scheme. Her Honour held that tracing the funds to ascertain what actual use had been made of them was irrelevant. Her Honour stated:

The proposition was that if any of the Growers' funds were so applied, then the property acquired must be 'scheme property' as defined. The approach is wrong in law and contrary to authority. A forensic examination that traces where the funds went is of no assistance in identifying scheme property. The correct approach, as explained by Keane JA in Mier and exemplified in Treecorp Australia, is one of objective characterisation having regard to the constituent documents of a scheme. It is the scheme itself, not a forensic tracing of the funds, which provides the connection between the 'contribution' of funds by investors and any property that 'acquired' or 'derived' from those contributions.[75]

112 In reaching this conclusion her Honour noted that the argument was not premised on a tracing of funds by reference to the application of funds in accordance with the scheme documents:

The submission could not be so based because those documents put beyond doubt that the application fees were constituted by amounts payable as fees due to WFL for management of the plantations and, in some schemes, payable as rent due to WFL under the leases. None of that is surprising, given that these schemes were designed and marketed as tax-effective structures that entitled Growers to up-front deductions for the whole of their application fees and tax deductibility depended on the application fees having the character of outgoings on revenue account.[76]

113 Primary submitted that the approach which it is urging is based upon the application of funds in accordance with the scheme documents. It says that on the proper construction of the constituent documents, it was contemplated that the funds contributed by Growers would ultimately be used in part for the purchase of the Land and that this is in fact what happened.

114 The parties informed the Court that the case before her Honour proceeded on the basis of exemplar documents, which included the relevant constitutions of the schemes, but not the investment deeds.

115 Re Gunns Finance Ltd (in liq)(res & mgrs apptd) and Re Gunns Plantations Limited (in liq)(res & mgrs apptd) (No 2)[77] ('Gunns No 2'), concerned another forestry managed investment scheme in which the RE leased land from third parties and then sub-leased woodlots to growers. One issue for consideration was whether a new RE would be liable for forestry fees owed to the landowners as a result of the effect of s 601FS. Robson J approached the issue by first considering whether the head leases were scheme property. His Honour referred to the decision in Huntley.[78] Whilst Robson J noted that the decision was distinguishable on its facts, there were some similarities:

Rares J's observations that the scheme could not operate without the head leases is equally applicable to these Gunns schemes. Secondly, under the Gunns schemes, harvest proceeds otherwise belonging to the growers were to be used to compensate the responsible entity for the rents payable to the head lessor. Thirdly, the first reason that Rares J relied on relating to the terms of Timbercorp's Australian Financial Services Licence did not rely on tracing member's moneys into the acquisition of the disputed leases. In other words, Rares J accepted that the property could be contributed by the responsible entity as part of the scheme.[79]

116 Robson J considered whether the head leases had been contributed by the RE to the scheme property. His Honour said:

[t]he definition of scheme property includes "contributions of money or money's worth to the scheme." The note to paragraph (a) of the definition states that if what a member contributes to a scheme is rights over property, the rights in the property that the member retains do not form part of the scheme property. It is implicit, therefore, that "money's worth" may include rights over property. In my view, under the Gunns schemes, GPL contributes rights over leasehold land to the scheme....

As explained, this contribution is an essential element of the scheme and without it the scheme would not exist. The contribution of the forest rights that GPL has obtained from the head lessors, which are then made available to the growers, lies at the heart of the scheme. The compensation to GPL for the contribution was to be a share of the wood sale proceeds. This is the very nature of a scheme, where participants contribute money or money's worth and share the proceeds.

Although the responsible entity may not be characterised as a member of a managed investment scheme for all purposes under the Act unless it takes an interest as a grower, GPL was a participant in the scheme and was to share in its proceeds.[80]

117 Robson J found that Gunns held an interest in the scheme (being entitled to share the proceeds of the trees to the extent of 12%), was a member of the scheme and that the head leases were scheme property.[81] He stated:

Further, I should follow the decision of Rares J unless I consider that decision clearly wrong. I respectfully entirely agree with his Honour's decision and with his Honour's analysis of the Act and the Timbercorp scheme.[82]

118 His Honour does not seem to have been referred to the decision of Davies J in Willmott (No.2)[83] nor to Gordon J's decision in Treecorp.[84] The Liquidators submitted that Gunns (No. 2),[85] is distinguishable because his Honour was concerned with leasehold rather than real property.

119 The first question for consideration is whether the Land is scheme property as that term is defined in s 9 of the Corporations Act. In answering that question, the task is to look at what the scheme is according to the documents which regulate and describe it[86] and, in this case, to see whether the Land is either a contribution of money's worth to that scheme or property acquired with contributions or the proceeds of contributions to that scheme.[87] Here, the prospectuses, the Investment Deed, the Constitution, the Preparation & Planting, Maintenance and Lease Agreements are all relevant.

120 The first step then is to understand the Scheme. Initially, it is best to approach that task by reference to the Investment Deed, the prospectuses, the Preparation & Planting, Maintenance and Lease Agreements ('Original Scheme Documents'). The reason for this is that they were the documents that established the Scheme with the Constitution only coming in to force in September 1999 after the last of the prospectuses had been issued on 26 April 1999. Once the parameters of the original scheme are understood, one can then consider the Constitution to see if there has been any alteration to the Scheme.

121 Looking at the Original Scheme Documents, one ascertains that the purpose of the Scheme was to enable Growers to operate their own business growing and selling timber on land leased to them by the Manager. The steps involved in executing that plan were as follows. The Growers paid $11,950 for each hectare of land and trees. Part of that amount was for rental and the balance was paid for preparation, planting and maintenance. Taking the 1995 project as an example, the steps to be taken by the Manager were:

(a) to arrange for the purchase of Avonleigh and Cabanandra, with the Manager becoming the owner of those properties;

(b) to lease part of Avonleigh and Cabanandra to the Growers (that is, the hectares of land and trees) for an initial term of 25 years; and

(c) to prepare, plant and maintain those hectares, which required the use not only of the hectares leased to the Growers but also use of the Non-leased land.

122 Measures were put in place to ensure that the Manager would complete those steps. First, the Development Account was established into which the $900 per hectare was deposited. The process was as follows. The total amount paid by the Growers was paid into the Application Account which was opened in the name of the Representative.[88] The money in that account was then paid to the Manager.[89] The Manager was then obliged to pay a 'portion of the application moneys'[90] (the $900 per hectare Development Amount) to the Representative.[91] That money was deposited into the Development Account.[92] The Representative was obliged to pay the Manager from the Development Account once the Manager certified that it had expended or committed itself to expend any amount in relation to purchasing Avonleigh and Cabanandra, preparing those properties for planting, planting trees or undertaking other works connected with establishing the treed areas, access and firebreaks.[93]

123 The second precautionary measure was that the Manager was to lodge the titles to Avonleigh and Cabanandra with the Representative but only until the completion of the project.

124 There was no intention that the Growers would obtain a beneficial interest as owner of the freehold interest in the Land. They did not pay their contributions for this. On the contrary, they contributed money so that they could lease hectares and run their business on those hectares.

125 There are a number of matters that point to the conclusion that the Scheme did not involve the Growers having a beneficial interest in the fee simple estate in the Land. First, the prospectuses stated that the contributions the Growers made were for preparation and planting, maintenance and rental - not for the purchase of land.[94] Secondly, the prospectuses made it clear that the hectares would be leased to the Growers by the Manager as owner.[95] So it is that WFL was able to lease part of the Land to members of different schemes (Mr Spielvogel and the growers in the Willmott Forests Project).[96] Thirdly, the Register of Growers to be kept by the Manager was required to include details of the land leased to a Grower (that is, the individual hectares) to identify that Grower's interest in the Land.[97] This supports the contention that the Growers' interest in the Land was a leasehold interest in the hectares only and not any greater interest. Nor was it an interest in any other land, in particular, the Non-leased land. Consistently with this, the Investment Deed provided that both the Manager and the Representative were to recognise the Grower as the absolute owner of the leasehold interest as set out in the register. It was not recognition of a freehold interest. Again, this is why WFL was able to lease part of the Land to members of different schemes.[98] If the Land was owned or intended to be owned beneficially by the Growers in the Scheme, WFL would not have been able to grant leases to Mr Spielvogel and the growers in the Willmott Forests Project. Fourthly, the title to the Land was only to be held by the Representative until the conclusion of the project. This temporal limitation suggests that once the project was complete, the Manager would then be free to sell or mortgage the property. Fifthly, the restrictions on transfer and mortgaging the property do no more than safeguard the availability of the Land for use in the Scheme which may have been less certain if the Scheme had relied on land owned by a third party or land which was mortgaged. The restrictive provisions do not convert the Growers into the beneficial owners of the freehold interest in the Land. Finally, the Scheme was premised on providing tax benefits which would not be available if the Grower payments were expenditure of a capital nature.

126 As I have said above, the Constitution should be construed as leaving the substantive rights of the Growers undisturbed unless an alteration was made which was necessary to remove provisions that were included in the Investment Deed to satisfy the old prescribed interests system.[99] For the reasons that I have given, it was not the intention under the Original Scheme Documents that the Growers were to be the beneficial owners of the fee simple estate in the Land. When the Constitution was introduced, it made the position a little clearer and it did not deprive the Growers of any interest in the Land that they had previously. The Constitution provided that the Assets were to be held on trust for the Growers. To recap, the definition of 'Assets' in the Constitution provided:

all the property, rights and income of the Project, but not application money or property in respect of which Hectares have not yet been issued.

127 This indicates that the Non-leased land was not intended to form part of the Assets. Whilst the definition in the Constitution does not determine whether the Land is scheme property,[100] it does assist with understanding the Scheme and with whether the Growers were intended to own all of the Land beneficially. The definition of Assets under the Constitution also conforms with the RE's obligation under s 601FC(1)(i) to clearly identify scheme property.

128 Further, as the Liquidators observed, the language of the Constitution distinguishes between the Land and the Assets. They referred specifically to the definition of Assets being property of the Project; that the Assets must be clearly identified as property of the Project; that the Project is defined as including the Assets and Liabilities of the Project. They contrasted these provisions with the definition of 'land' which is not defined as being an asset of the Project, but rather as any land acquired by the Manager for the purposes of the Project. Primary submitted that land acquired 'for the purposes of the Project' could also be property 'of the Project'. Whilst in some contexts that may be so, here, the structure and way that the words have been used suggests to me that there was intended to be a difference to specifically exclude the freehold Land from the Assets which were to be held on trust for the Growers.

129 Having ascertained the scope of the Scheme, it is next necessary to consider whether the Land is either a contribution to the Scheme or property acquired with contributions or the proceeds of contributions to the Scheme. I will consider each of these issues in turn.

130 Primary submitted that the Land falls within paragraph (a) of the definition of scheme property in s 9 of the Corporations Act as a contribution of money's worth. Primary contended that the reasoning of Robson J in Gunns (No 2),[101] applies directly to the Scheme because like the head leases in Gunns (No 2), the Land is an essential element of the Scheme which would not exist without the Land. Primary observed that the RE is required to maintain the plantation with the definition of 'Plantation' contemplating that the plantation is comprised of both Leased and Non-leased Land.[102] It observed that in essence this is a plantation scheme and the plantation includes the Non-leased land to which the Liquidators say Primary has no right. Primary submitted that without unfettered access to and use of the Non-leased land (notably firebreaks and access roads), it is practically impossible for Primary to fulfil its responsibilities as RE and manager under its AFSL and the Scheme's constituent documents. Consequently, Primary argued that the Land has been contributed to the Scheme by WFL.

131 However, if the Scheme is viewed in the way that I have outlined above, it follows that the freehold interest in the Land was not contributed as money's worth to the Scheme and does not fall within the paragraph (a) definition in s 9 of the Corporations Law of scheme property. Whilst I accept Primary's submission that WFL held a direct interest in the Scheme as a member through the hectares it held and possibly an indirect interest through the 30% interest assigned by those Growers who opted to defer repayment of the principal on loans,[103] I do not think that it is correct to characterise what occurred as a contribution of the Land to the Scheme. Rather, what the Manager did was make available the right to use the Land for the purposes of the project. That is, the Land was available for leasing the hectares to Growers and for use by the Manager to carry out its obligations to prepare and maintain the plantation, which required access to and use of the Non-leased land as well as the Leased land. Moreover, whilst on one view, the Land is necessary for the operation of the Scheme, it is not ownership of the Land that is needed but simply the right to use the Land (that is, both the Leased land and the Non-leased land) that is essential.

132 The situation here is different from that considered by Robson J in Re Gunns (No 2).[104] Robson J was considering a head lease granted in favour of the RE and the scheme under consideration was consequently of a different type. His Honour was not considering whether the freehold interest in the land there in question was contributed to the scheme. Here, the facts are more akin to those considered by Davies J in Re Willmott (No 2).[105]

133 However, Primary contrasted the Constitution and the Investment Deed in this case with the constitution considered in Willmott (No 2)[106] where there was an express provision to the effect that the land was held by the RE beneficially and the constitution in Treecorp[107] which provided that the moneys in the Application Fund were held by the RE as bare trustee. Here there is no such provision. Primary also noted that Davies J did not need to engage with the practical issues of enabling an RE to continue to operate the schemes in that case because those schemes were coming to an end.

134 Whilst the Constitution in the present case does not contain the same provision as that relied upon by Davies J, nevertheless the Scheme and how it was intended to operate is in many respects the same. In particular, the definition of 'Assets' is essentially the same. Just as in this case, her Honour was dealing with land owned by WFL and used for the purposes of the schemes under consideration there.

135 Primary contended that the statements in the prospectuses that WFL had no interest in the property 'proposed to be acquired for the purposes of the Project,' (paragraph 11(2))[108] supports the conclusion that the Land is scheme property. Primary accepted that the statement operated as an acknowledgment that it had no conflict. However, Primary submitted that it also amounts to a representation that the Manager did not have an interest in the land that was to be acquired or indeed in the land that was held over from previous prospectuses.

136 In my view, the statement is no more than a statement current at the time of issue of each prospectus that the Manager did not have an interest in any property that had been identified for use in the Scheme but which had not been acquired at that time. It says nothing about the properties that had been acquired and carried over from the previous years' projects. Rather, the statement was simply an acknowledgment that the Manager had no conflict of interest and that, for example, it was not receiving a secret commission or the like. It was not a representation that the Manager did not have an interest in land held over from previous prospectuses.

Property acquired with the proceeds of contributions

137 Primary also submitted that the Land falls within paragraph (d) of the s 9 definition of scheme property being property acquired with the proceeds of contributions. Primary's case is that the Court should be satisfied based on the construction of the scheme documents supported by the actual movement of funds contributed by the Growers to the Scheme that the Land was acquired with the proceeds of contributions to the Scheme. Primary submitted that there are four factors that point to the Land being scheme property applying paragraph (d) of the s 9 definition:

(a) the scheme documents treat the Project Land as scheme property by placing restrictions on its transfer and encumbrance. It is a feature of the Scheme that the Land is owned by the RE rather than by a third party;

(b) the Land is essential to the Scheme - there are practical difficulties in operating the Scheme without the RE having unfettered use of and access to the Land with much of the work required to be undertaken by the RE on the Non-leased land including maintaining and clearing firebreaks, maintaining and clearing access roads, controlling vermin and controlling noxious weeds;

(c) the Investment Deed uses the language of trust including that the various promises (including those relating to the holding of property) are for the benefit of the Growers; and

(d) there is a link between the subscription moneys and the purchase of the Project Land, both in fact and by operation of the Scheme documents.

138 Primary relied on the 1995 prospectus which contemplated that land would not be purchased until application fees were obtained from Growers, lists particular properties that would be purchased and states that the Representative had no interest in the property acquired for the purposes of the Scheme. I have already dealt with the last of these matters - the statement was not that the Manager had no interest in properties that it already held but rather that it had no interest in properties that were to be acquired in the future for the purpose of the Scheme. There is nothing surprising in the identification of the properties in the prospectus, nor in the statement that the properties would not be acquired until the minimum subscription was reached. The intended location of the plantations was no doubt of interest to the Growers. The Manager would not wish to commit to purchase properties until it knew that sufficient investors had signed up to the Scheme to make it worth the Manager's while. In context, these matters do not suggest that the Land must be scheme property.[109]

139 Primary submitted that the paragraph (d) definition of scheme property does not require that the property be acquired exclusively with, or with proceeds of, contributions. Nor it contended, does it require that the property be acquired directly with, or with proceeds of, contributions, but includes property acquired indirectly. Finally, Primary submitted that the tax deductibility of Grower contributions was achieved by the direct allocation of Application Moneys to expenditure of a non-capital nature, as contemplated by the prospectuses under the heading 'How does the Project Work?'. The use of funds in the purchase of the Land came about through the provisions of the Investment Deed, requiring that a proportion of the Application Moneys be paid by the Manager back to the Representative and expended in (among other things) purchasing the Land. In those circumstances, the Land was property acquired only indirectly with proceeds of contributions by Growers, thus falling within the definition of scheme property, apparently without jeopardizing the tax effectiveness of the investments. Primary relied on that part of the Investment Deed which provided that the $900 development amount might be used to purchase land. Primary contends that that is a clear indication that funds originally sourced from Growers were to be used for the purchase of the Land. However, Primary's argument does not take into account that once the money contributed by the Growers was paid out of the Application Account to the Manager, it ceased to be scheme property.[110] Although the prospectus spoke of the Manager then paying the $900 per hectare Development Amount as a 'portion of the application moneys'[111] this is not an accurate description of what occurred. Clause 16.1 of the Investment Deed provided that the Manager would be remunerated for its services in acting as Manager by payment of the $11,500 per hectare payable under the Grower Leases, Preparation & Planting and Maintenance Agreements. Clause 10.1 of the Constitution also provided for this. As such, once the moneys were paid to the Manager, those funds became its money, albeit that there was an obligation to then make a payment of $900 per hectare to the Representative. The position might have been different if the Investment Deed had provided that instead of the Representative paying all of the moneys in the Application Account to the Manager (as its remuneration), the Representative had paid $11,050 to the Manager and retained $900 per hectare and deposited that amount directly into the Development Account. If that $900 had then been used to buy land then it might have been categorized as land acquired indirectly with the contributions or proceeds of contributions to the Scheme. But that is not the way that the Scheme operated. The steps taken resulted in there being no property acquired directly or indirectly with the contributions or proceeds of contributions made by the Growers. The initial payment of the whole $11,950 to the Manager as its remuneration broke the nexus.

140 Primary submitted that the tracing of contributions into the purchase of the Land is not irrelevant.[112] Primary argued this is particularly so when the money trail in fact accords with what appears to be contemplated under the constituent documents. Primary submitted that the evidence of Mr Bond confirms that Grower contributions were dealt with by the Representative in the way set out in clause 6 of the Investment Deed. It submitted that this is consistent with the approach of Keane JA in Mier v FN Management Pty Ltd.[113]

141 In my view, it is necessary to look at what the documents provided was to happen rather than initially engaging in a forensic tracing of the funds. If having satisfied oneself that the documents provided that the funds were to be used to acquire the property in question, then it may be appropriate to examine whether that is how the funds were expended to confirm the position. However, for the reasons that I have already given, here the structure of the payments does not lead to the conclusion that they were to be used to acquire the Land as scheme property. Consequently, it is not necessary to consider whether there is evidence which establishes that the Land was purchased in whole or in part with the money from the Development Account.

On 22 December 2011 (that being the date on which Primary replaced WFL as the RE of the Scheme) did WFL's rights in relation to the Scheme in respect of the Land become rights of Primary for the life of the Scheme by reason of ss 601FS and 601FT of the Corporations Act?

144 As I have said above, the purpose of ss 601FS and 601FT of the Corporations Act is to aid the smooth transition where an existing RE is replaced with another.[114] Section 601FS seeks to achieve this by providing that the rights, obligations and liabilities of the former RE in relation to the scheme become those of the new RE. I agree with the views of Rares J in Huntley[115] that the words 'in relation to' are of wide import and that they should not be read down in the context of s 601FS. The clear legislative intent is that the new RE will be in no worse position in carrying out its functions than the old RE.

145 The Liquidators contended that WFL's rights are as owner and they are not 'rights in relation to the Scheme.' The Liquidators submitted that a freehold estate carries with it the right to seisin and consequently the actions for the protection of the land with those rights being unconnected with the Scheme.

146 However, whilst some of the rights that WFL exercised were as owner (for example, in granting the leases) not all of what WFL did was in its capacity as the owner of the Land. Indeed, the proper application of ss 601FS and 601FT is made more complex than it might otherwise have been because WFL was both the RE and the registered proprietor of the Land on which the Scheme operates. As a consequence of its dual role, as a practical matter it was not necessary for WFL (as RE) to enter into written agreements with itself (as registered proprietor) so that it could carry out its obligations in respect of the Scheme, including its obligations to maintain the plantation for the life of the Scheme. However, when it undertook work falling within the scope of the Preparation & Planting and Maintenance Agreements, it was doing so not as registered proprietor but rather in its capacity as RE. In this sense, it exercised (but did not need to document fully) a right as RE to access the Land and to conduct works on it such as maintenance of firebreaks, pest and weed control as well as work undertaken on the hectares which were leased to the Growers. WFL did document at least some of the rights that it exercised in performance of its role as RE by entering into the Forest Property and Forestry Right Agreements with WFIM. As the registered proprietor, it also granted rights under the Grower Leases. However, to the extent that the Grower Leases and Forestry Right and Forest Property Agreements do not empower the RE to carry out its obligations in relation to the Scheme, that ought be no barrier to Primary doing so, for the Growers contracted the RE to do that work. They did not specify how the RE was to undertake the work, rather they left it to the RE to make any necessary arrangements, knowing that the RE was the owner of the Land.

147 As the Court of Appeal observed in Capelli v Shepard,[116] rights may be less than rights of ownership. So here, the rights that WFL exercised when it undertook work in respect of the Scheme were not rights of ownership but rather the right to use the Land for the purposes of the Scheme and, in particular, the right to access the Land and to carry out on it the work required under the various agreements. In my opinion, as a result of s 601FS, when Primary replaced WFL as RE, it took over the obligations of the RE under the various agreements and the Constitution and it also became entitled to exercise the rights that WFL had previously exercised as RE to discharge those obligations. If it were not so, the clear legislative intent to install the replacement RE in exactly the same position as that previously occupied by the outgoing RE would be thwarted.

148 Moreover, if the legislative intent and the breadth of language used in s 601FS is kept in mind, it does not matter that not all of the rights were documented. In the past, WFL as RE was able to access the relevant parts of the Land at any time of its choosing and could undertake all works which were necessary or incidental to the performance of its obligations under the Preparation & Planting and Maintenance Agreements and in its operation of the Scheme. So now, Primary is entitled to do the same. Given that the role of RE and landowner is now split, as a practical matter, Primary should give prior notice to the Liquidators of when it intends to undertake work and the general nature of the work. But it does not need to seek the consent of the Liquidators to do so, WFL in effect having given that consent in advance through the way that it operated the Scheme.

149 The Liquidators submitted that s 601FS only operates in relation to scheme property. They contend that Primary is in effect endeavouring to transfer on an interim basis a freehold interest in the Land and s 601FS does not extend to permit this. They submitted that ss 601FS and 601FT only deal with rights, obligations and liabilities relating to personal not real property. They contended that real property rights may only be transferred as opposed to contractual rights which are novated. However, it seems to me that this is not the analysis that is called for by the legislation. Sections 601FS and 601FT do not speak in terms of transfer or novation. Whilst Barrett J in Re Investa[117] said that the sections do not seem to effect a statutory vesting or assignment of property generally and Rares J in Huntley[118] described the sections as effecting a statutory novation, it seems to me that what is called for is simply to ask whether there is a right of the RE in relation to the scheme, rather than to ask whether it is a right that could be novated under general legal principles. If there is such a right, then s 601FS ensures that it becomes the right of the replacement RE (unless, of course, it falls within the exclusions provided for in s 601FS(2)).

150 In this vein, Primary submitted that s 601FS ought not be restricted to the novation of non-proprietary rights and relied on Huntley[119] and Gunns (No 2).[120] It submitted that it is entitled to be registered as the proprietor of the Land with the rights it holds as the new RE being rights akin to a life interest - except that the life concerned is that of the Scheme. Ownership in the technical sense but not in perpetuity would be conferred and rights of this type of 'ownership' would be constrained by the constituent documents of the Scheme. Consequently, the rights it obtained on taking up the role of RE would not include the right to sell the Land, nor the right to the proceeds of sale of the Land at the conclusion of the Scheme (although it accepted that the Growers may seek to make such a claim).

151 I do not think that it follows that because Primary is entitled to exercise rights as a result of the effect of s 601FS that under s 601FT it is entitled to be and must be registered as the proprietor of the Land for the duration of the Scheme. Indeed, I do not think that it could be, at least in respect of the land leased to Mr Spielvogel and the growers in the Willmott Forest Project. Those parts of the Land are not connected with the Scheme and have nothing to do with WFL's former role as RE of the Scheme. There are no rights of the RE 'in relation to' the Scheme in respect of those parts of the Land.

152 Further, I do not accept Primary's submission that the performance of its obligations to the Growers is dependent upon it holding the legal title to the Land. Section 601FT only applies to ongoing rights and obligations.[121] So far as the Grower Leases are concerned, they have been granted and Primary will not be required to enter into any future leases.

153 The transfer of a Grower's hectares potentially raises some issues. Under both the Investment Deed and the Constitution, if a Grower wishes to transfer their hectares, among other things, they must assign the Grower Lease. Once the necessary documents have been signed, the RE then registers the name of the transferee in respect of the transferred hectares in the Growers' register. Under clause 14.7 of the Constitution, the RE is required to lodge 'with any governmental or other statutory authority all such documents as are necessary to fully effect the transfer of the Hectare to the transferee.' It is quite likely that to do this, some form of written consent by the registered proprietor (that is, WFL) would be required. However, again it seems to me, that if before Primary had been appointed WFL carried out this function, it would in a sense, have lodged the necessary documents as RE. To the extent that any documents or consent were required from the registered proprietor, it gave that consent and provided those documents in its capacity as registered proprietor. Implicit in this arrangement is that WFL would grant consent readily provided that the requirements under the Constitution and the Grower Lease had been met. Indeed, the Grower Leases provide that the Grower must not assign or otherwise dispose of the land leased to the Grower without the prior written consent of WFL, but that consent will not be withheld if the terms of the lease have been complied with by the Grower. One would expect therefore that WFL would not unreasonably withhold its consent. Consequently, whilst at first blush the transfer of a Grower's hectares would seem to give rise to a difficulty if Primary is not registered as proprietor, any difficulty is more apparent than real.

154 As to the Forest Property and Forestry Right Agreements, it seems to me that the effect of s 601FT is that they now take effect as if Primary were named in them, not in place of WFL but rather in place of WFIM. WFL entered into those agreements as registered proprietor with WFIM (on behalf of the Growers). WFL and WFIM acknowledged that WFL in its capacity as RE was required to enforce WFIM's rights under the agreement. Now it is Primary that is entitled to enforce the rights.

155 Although the Liquidators were critical of Primary's lack of definition of the rights to be assumed by it, in my opinion, any difficulty has been created because WFL occupied the dual role of owner and RE. It is therefore not readily ascertainable in the abstract to define with precision each right that might be exercised as RE. A similar difficulty was identified by the Court of Appeal in Capelli v Shepard.[122] It may be that if Primary and WFL cannot agree, that it will be necessary, on a case by case basis, for the Court to determine whether a particular right exists or not.[123]

156 The Liquidators submitted that the novation of WFL's rights in relation to the Land would be a clear interference with its proprietary interest without any clear intention on the part of the legislature to do so and that interference could extend for the perpetuity period to 12 April 2075. However, as I do not think that Primary is to stand in the shoes of WFL as registered proprietor, nor is it to be registered as proprietor, the type of interference that the Liquidators contemplated would arise does not. That WFL finds itself in the position it does is a consequence of it having entered into the arrangements that it did as part of the Scheme which converted to a managed investment scheme that has a potential life of 80 years and that is regulated by the provisions of the Corporations Act including ss 601FS and 601FT. It is not an interference with the rights of WFL as registered proprietor, rather, it is maintaining the status quo. It was already burdened with the effect of an RE exercising rights that may impinge on its rights as owner - it is just that there was no clear delineation between the roles WFL performed as registered proprietor and those it performed as RE.

157 I accept that s 601FS does not operate to transfer the freehold estate in land in this case where it is not scheme property. However, as I have set out above, it is the rights that WFL must be taken to have exercised as RE that are now rights of Primary. I do not accept that what is occurring is the creation of a new right (as contended for by the Liquidators). Rather, it is an articulation of a right that is necessary because of the particular circumstances in this case where that had not previously been required because WFL was both registered proprietor and RE.

158 For these reasons, the answer to question 2 is 'Yes, insofar as those rights were rights of WFL in relation to the Scheme.'

Do the scheme documents have effect as if Primary is named in them?

159 The next question is which of the certificates of title to the Land, the Forestry Right Agreement, the Forest Property Agreement and the Grower leases are to have effect for the life of the Scheme as if Primary (rather than WFL) is the party to, or referred to in that document.

160 The Liquidators have agreed to transfer the Forestry Rights to Primary, that is, the rights which WFIM holds on behalf of the Growers. For the reasons that I gave in the preceding section, this is required.

161 For the reasons that I have already given,[124] Primary is not entitled, nor is it necessary, for Primary to be registered as proprietor of the Land.

162 Primary submitted that although the Liquidators accept that Primary is entitled to the rights held by WFIM on behalf of the Growers, this is no solution because the Liquidators say that those rights are limited to the Leased land. Primary submitted that the Scheme is not viable without the rights to the Land.

163 Primary submitted that WFL provided the Forestry Rights to WFIM by reason of its role as RE because the only reason it granted those rights was to ensure that it complied with the terms of its AFSL. However, it seems to me that this contention confuses the roles of WFL and WFIM under the agreement. As I have said above, WFL entered into the agreement and granted the rights in WFL's capacity as the registered proprietor. It granted those rights to WFIM on behalf of the Growers albeit that at the same time in its role as RE it was entitled to enforce WFIM's rights. The obligation to provide access to WFIM under the Forestry Right Agreement arises because it is the owner of the Land, not because it was RE. It is not an obligation of the RE.

164 Primary's AFSL includes the same conditions as those in the WFL AFSL such that it is required to register in the name of the member, licensee or custodian any interest which confers a right to use the land on which the primary production occurs in the operation of a scheme of which it is the RE. Primary contends that if it is to comply with that condition, it must have rights over or to the Land. Primary submitted that it must be the registered proprietor to enable it to take control of the Forestry Rights and to pass those rights on to Growers. I do not agree. To the extent that the Forestry Right Agreement (and the Forest Property Agreement) fulfil the obligation imposed by the licensing condition, then Primary need have no concern because as a result of s 601FT those agreements are to be read as if it were a party to it in place of WFIM. To the extent that those agreements do not fulfil the AFSL obligations, Primary can be in no better position than WFIM (or WFL in its former capacity as RE).

165 I do not accept the Liquidators' submission that the Forestry Right Agreement is not capable of having effect after the change of RE because Primary could not confer access rights when it is not the registered proprietor of the Land. The rights under the agreement are already in place. The Forestry Right Agreement provides that it will terminate at the same time that the Grower Leases terminate.

166 Some difficulties may be encountered if WFL sells the Land because the Forestry Right Agreement provides that WFL (as grantor) will be released from its obligations from the date it ceases to be the registered proprietor. Primary submitted that if the Land or rights to the Land are scheme property or novated to Primary, then either the existing Forestry Right Agreement would need to be terminated so that new Forestry Rights could be created or the agreement needs to wholly transfer to Primary and another party nominated by Primary (to take the place of WFIM). However, again it seems to me that any issue arising as a result of WFL selling the Land is more of a theoretical than practical difficulty. For the Forestry Right Agreement contains an acknowledgement by WFL that the Grower Leases contain rights and obligations between the parties in relation to the land including the right to enter and use the land in connection with the forestry right. Any purchaser would take the Land subject to the Grower Leases. Consequently, whilst there may be some issues that might require negotiation with any new landowner, it is unlikely that those matters could not be resolved. Indeed, Primary accepted that there could be difficulties on particular issues in determining what it could and could not do, even if it were to have been registered as proprietor of the Land for the life of the Scheme.

167 For the reasons that I have given, in my view the Forestry Right Agreement only applies to the Leased Land.[125] However, that is not an end to the matter. This is because to the extent that the Forestry Right Agreement does not provide the means by which Primary may carry out its obligations as RE, that is not a barrier to it exercising the rights that are necessary or incidental to the performance of its obligations. This is so, albeit that those rights have not previously been fully documented.[126] The exercise of such rights does not require Primary to be registered as the proprietor of the Land.

168 As I have set out above, under this agreement, WFL vested ownership of the 'forest property' (that is, the trees) in WFIM, which entered into the agreement on behalf of the Growers. I accept the Liquidators' submission that the Forest Property Agreement does not confer a forest right. Consequently, this agreement may not assist Primary to any great extent. Nevertheless, to the extent that it does, again, it seems to me that Primary is now to be taken as the party standing in the shoes of WFIM. If that is not sufficient for Primary to satisfy the conditions of its AFSL, then, as I have already said, that is a consequence that it must face. As with the Forestry Right Agreement, Primary can be in no better position than WFIM. Again, to the extent that the Forest Property Agreement does not enable Primary to carry out its obligations under the Scheme, this does not matter. This is because, the undocumented rights that WFL as RE previously exercised have also now passed to Primary.

169 Like the Forestry Right Agreement, the Forest Property Agreement also provides that WFL (as the grantor) is released from its obligations once it ceases to be the registered proprietor. However, for the reasons that I have previously set out in relation to the Forestry Right Agreement, I do not think that this creates an insurmountable problem for the replacement RE.

170 It follows from what I have said above that WFL entered into the Grower Leases in its capacity as registered proprietor not as RE. In addition to the Grower Leases themselves, the prospectuses made this clear - they expressly stated that the Manager as owner would lease the land to Growers through the lease agreement. Consequently, Primary is not entitled to replace WFL as lessor and the Grower leases should not be read as if Primary were the lessor. I do not think that this inhibits Primary from carrying out any of its obligations. The obligations of the landlord (such as the obligation to provide quiet enjoyment) will remain with WFL. The last prospectus was issued in 1999 and there are no ongoing obligations to grant further leases. I have already set out how the transfer of hectares by a Grower may be accommodated.[127]

171 For the reasons that I have given, what Primary is entitled to do is to enforce the rights (both documented and undocumented) that WFL as RE previously exercised, but that does not include rights of the registered proprietor under the leases.

172 The answer to the third question is 'the Forestry Right Agreement and the Forest Property Agreement insofar as those agreements concern the Scheme.'

Is WFIM required to transfer the forestry rights to Primary?

173 The fourth question is whether WFIM is required to transfer its rights under the Forestry Right Agreement and Forest Property Agreement ('Forestry Rights') to Primary or to a party nominated by Primary.

174 The Liquidators noted that WFIM had entered into the Forestry Rights Agreements on behalf of the growers under the WFL schemes and is obliged to deal with the Forestry Rights only in accordance with the relevant scheme constitution. The Liquidators submitted that the Constitution does not confer upon Growers the right to assign or transfer Forestry Rights. However, this submission does not take into account the effect of ss 601FS and 601FT. The Forestry Rights (so far as they relate to the Scheme) are a right of the RE (to be exercised on behalf of the Growers) in relation to the Scheme. Pursuant to s 601FS, those rights became rights of Primary when it took over the role of RE and pursuant to s 601FT the agreements must now be read as if Primary (not WFIM) was a party to them when it comes to exercising the rights for the purposes of the Scheme. The Liquidators contended that it is probably unnecessary for WFIM to transfer the Forestry Rights to Primary as they are enforceable by Primary against WFL pursuant to clause 10.5 of each agreement.[128] I accept that submission. Indeed, given that the Forestry Rights concern not only the Scheme but also other schemes, it would seem preferable for Primary simply to rely on its rights under clause 10.5 of each agreement.

Do the forestry rights extend to the Non-leased land?

176 The next question is concerned with the Land that has not been leased to the Growers. As I have said earlier in these reasons, some of the Non-leased land is needed for access to the plantations, for fire protection (such as firebreaks), for felling trees and to undertake pest and weed control. The Liquidators have engaged third parties to do limited preventative and maintenance work on the Land. However, the funds available in the liquidation of WFL are limited and are very close to running out so far as that type of work is concerned. The Liquidators' position is that Primary may not use the Non-leased land unless it has their consent (as liquidators of WFL as the registered proprietor). They submitted that the necessity to access the Non-leased land is not relevant to the issues in this case, but in any event, they say that any difficulties in this regard are overcome because they are willing to consider Primary's request for access to the Non-leased land, provided that Primary specifies the purpose of access and when and to which part of land access is sought. The Liquidators' position is that they need this information to consider the potential risks which might arise from WFL granting access, including the consequences for WFL's insurance coverage.

177 For the reasons that I have given, I do not think that the rights under the Forestry Right Agreement and the Forest Property Agreement extend to the Non leased land.[129] However, also for the reasons that I have given, I do not think that that is the end of the matter. It is clear that whilst WFL was the RE it accessed and carried out works as RE using both the Non Leased land as well as the Leased land. Primary now stands in WFL's RE shoes and is entitled to exercise any prior rights (whether documented or not) that are necessary or convenient for it to fulfil the obligations of the RE under the Preparation & Planting and Maintenance Agreements. It does not need the Liquidators' consent to continue to do what WFL had done previously as RE.

178 The answer to the fifth question is therefore 'No'.

179 The last question is whether the Land is held on trust by WFL (and any of its successors in title) for the life of the Scheme, for the benefit of Primary and the Growers.

180 Primary submitted that, in circumstances where the Scheme documents do not expressly set out how the Scheme operates in the event WFL ceases to be RE, the covenants in the constituent documents can equally be regarded as a basis for finding a trust. Primary submitted that the language of trust was used in both the Investment Deed and the Constitution. For example, it relied on the recital in the Investment Deed which stated that the Representative was to hold all application moneys in trust until proper disbursement in accordance with the deed and the requirement under the Constitution for the Manager to hold the Assets on trust. It also pointed to the covenants from the Manager and the Representative in the Investment Deed not to encumber the Land. Primary submitted that, if the Court is not satisfied on the construction of the Scheme's constituent documents that the Land is scheme property, it should nevertheless find that those documents at least evince an intention to create a more limited express (non-statutory) trust. Namely, a trust under which the RE for the time being holds the Land on trust for the benefit of the Growers, but only for the duration of the Scheme. Primary submitted that subject to any outstanding rights of indemnity against trust assets, the beneficial interest in all the Land will pass to WFL (as Manager under the original Scheme) on completion - the purpose of the trust having been fulfilled by successive RE's facilitating the proper management of the Land and the protection of the Growers' Leases from encumbrance or sale during the Scheme.

181 In Trident General Insurance Ltd v McNiece Pty Ltd,[130] Mason CJ and Wilson J said:

the courts will recognise the existence of a trust when it appears from the language of the parties, construed in its context, including the matrix of the circumstances, that the parties so intended. In divining intention from the language which parties have employed, the courts may look to the nature of the transaction and the circumstances, including the commercial necessity, in order to infer or impute intention.[131]

182 In my view, there was never any intention that the freehold in the Land would be held on trust for the Growers. Indeed, for the reasons that I have given in answering question 1, it seems to me that the intention was that the Growers would have no beneficial interest in the freehold. Also for the reasons that I have given, the freehold interest in the Land does not form part of the Assets (as defined) and the fact that the Assets are to be held on trust does not assist Primary. Similarly, whilst the language of trust is used in respect of the application moneys, this says nothing about the freehold interest in the Land.

"Burke Bond" means Burke Bond Queensland Limited which was the representative under the Investment Deed.

"Forest Property Agreement" means the agreement by that name dated 7 October 2004 between WFL as grantor and WFIM as grantee.

"Forestry Right Agreement" means the agreement by that name dated 7 October 2004 between WFL as grantor and WFIM as grantee.

"Forestry Rights" means the rights of WFIM under the Forestry Right Agreement and the Forestry Property Agreement.

"Grower Leases" means the lease agreements entered into between WFL and the Growers.

"Investment Deed" means the deed between TCL and Burke Bone dated 13 April 1995.

"Land" means the land described in the certificates of title which are listed in Attachment C to these reasons.

"Leased land" means those parts of the Land that are leased to the Growers pursuant to the Grower Leases.

"Liquidators" means Craig David Crosbie and Ian Menzies Carson, the second and third plaintiffs respectively.

"Maintenance Agreements" means the maintenance agreements entered into between WFL and the Growers.

"Non-leased land" means those parts of the Land that have not been leased to Growers pursuant to the Grower Leases.

"Original Scheme Documents" means the Investment Deed, the prospectuses for the Scheme, the Preparation & Planting Agreements and the Maintenance Agreements.

"Preparation & Planting Agreements" means the preparation and planting agreements entered into between WFL and the Growers

"Primary" means Primary Securities Ltd, the defendant and plaintiff by counterclaim.

"Scheme" means the Willmott Forests 1995-1999 Project (ARSN 089 598 612).

"Scheme Documents" means the documents regarding the Scheme to which WFL is a party, including:

(a) the certificates of title of the Land;

(b) the Forestry Right Agreement;

(c) the Forestry Property Agreement; and

(d) the Grower Leases.

"TCL" means Timber Capital Limited which was the original Manager under the Investment Deed.

"WFIM" means Willmott Forests Investment Management Pty Ltd (receivers and managers appointed) (in liquidation), the second defendant by counterclaim.

"WFL" means Willmott Forests Ltd (receivers and managers appointed) (in liquidation), the plaintiff and first defendant by counterclaim.

Attachment A - an aerial photograph of Ando 1 plantation

Attachment B - map of allotted hectares on Ando 1 Plantation

Attachment C - certificate of title details for the Land

Willmott Forests 1995-1999 Project (1997 Prospectus)

Willmott Forests 1995-1999 Project (1997 Prospectus)

Lots 27 & 65-DP756829, Lots 13,68,102 & 116-DP756856

Willmott Forests 1995-1999 Project (1997 Prospectus)

Willmott Forests Project (2000 Prospectus 1)

Willlmott Forests 1995-1999 Project (1995 Prospectus)

Willmott Forests 1995-1999 Project (1996 Prospectus)

Willlmott Forests 1995-1999 Project (1995 Prospectus)

Willmott Forests 1995-1999 Project (1996 Prospectus)

Willlmott Forests 1995-1999 Project (1995 Prospectus)

Willmott Forests 1995-1999 Project (1996 Prospectus)

Willmott Forests 1995-1999 Project (1998 Prospectus)

Willmott Forests 1995-1999 Project (1998 Prospectus)

Willmott Forests 1995-1999 Project (1998 Prospectus)

Willmott Forests Project (2000 Prospectus 1)

Willmott Forests Project (2000 Prospectus 1)

Willmott Forests Project (2000 Prospectus 2)

Willmott Forests Project (2000 Prospectus 2)

Willmott Forests Project (2000 Prospectus 1)

Willmott Forests Project (2000 Prospectus 1)

Willmott Forests Project (2000 Prospectus 2)

Willmott Forests Project (2000 Prospectus 1)

[1] The first plaintiff and first defendant by counterclaim.

[3] The defendant and plaintiff by counterclaim.

[4] The second defendant by counterclaim.

[5] The Liquidators also seek directions in relation to their remuneration and expenses. That part of the application is to be dealt with separately, having been referred to an Associate Judge for determination.

[6] Corporations Act, s 601FC(1)(i).

[9] This was in accord with the Investment Deed which provided that the Project would be "established on acceptance by the Manager of Applications for 'Hectares' relating to not less than the number of 'Hectares' nominated as the minimum subscription in the first prospectus to be issued in relation to the Project". The definition of 'Hectares' in the Investment Deed is different from the definition used in the prospectus. See below [29].

[10] 542 hectares for Cabanandra and 428 hectares for Avonleigh.

[11] See above [17].

[12] The Investment Deed obliged the Manager to ensure that each prospectus issued included a detailed forecast of expenditure and to ensure that each statement of accounts was accompanied by a detailed statement setting out expenditure and other matters.

[13] Under the terms of the Investment Deed, the Manager covenanted not to issue a prospectus unless it led investors to expect tax benefits by way of allowable deductions in relation to the subscription moneys.

[14] See above [17].

[15] See above [13]-[14].

[16] See below [140]-[141].

[17] As modified by ASIC Class Order 98/2159.

[18] See above [36].

[19] As modified by ASIC Class order 98/2159.

[20] See Corporations Act 2001 (Cth) s 601FC(1)(i).

[22] See above [52].

[23] Toll (FGCT) Pty Limited v Alphapharm Pty Limited and Ors (2004) 219 CLR 165, 179; Pacific Carriers Ltd v BNP Paribas [2004] HCA 35; (2004) 218 CLR 451, 461-462; Byrnes v Kendle [2011] HCA 26; (2011) 243 CLR 253, 284 [98]. See also Codelfa Construction Pty Ltd v State Rail Authority of NSW [1982] HCA 24; (1982) 149 CLR 337 and Western Export Services Inc v Jireh International Pty Ltd [2011] HCA 45; (2011) 282 ALR 604.

[25] [1973] HCA 36; (1973) 129 CLR 99, 109.

[27] Some of the entries referred to plantation numbers, for example, '1-73 inclusive'. However, those entries were amended by a statutory declaration so that they should read 'the whole of the land'.

[28] [2002] NSWSC 834; (2002) 43 ACSR 46.

[30] Definition in Corporations Act, s 9.

[31] See Re Gunns Finance Ltd (in liq)(recs & mgs apptd) and Gunns Plantations Ltd (in liq)(recs & mgs apptd) (No. 2) [2013] VSC 365 [191] where Robson J described the process as a seamless takeover. See also, Australian Olive Holdings Pty Ltd v Huntley Management Ltd (2010) 185 FCR 97 [80]; Re Investa Properties Ltd [2001] NSWSC 1089; (2001) 187 ALR 462 [11]; Huntley Management Ltd v Timbercorp Securities Ltd [2010] FCA 576; (2010) 187 FCR 151, 162-163 [45].

[32] Australian Olive Holdings Pty Ltd v Huntley Management Ltd (2010) 185 FCR 97, 117-118 [83]-[84].

[33] [2001] NSWSC 1089; (2001) 187 ALR 462.

[36] [2005] QCA 408; [2006] 1 Qd R 339.

[37] Ibid [37]. McMurdo P and Douglas J agreed with Keane JA.

[38] [2009] VSC 33; (2009) 69 ACSR 530.

[40] Capelli v Shepard [2010] VSCA 2; (2010) 29 VR 242.

[41] Ibid 270 [134]-[135] (citation omitted).

[42] Ibid 271 [137]-[139] (citation omitted).

[43] Ibid 272 [143] (citation omitted).

[46] [2010] VSCA 2; (2010) 29 VR 242.

[47] [2009] FCA 278; (2009) 175 FCR 373.

[51] [2010] FCA 576; (2010) 187 FCR 151.

[53] [2001] NSWSC 1089; (2001) 187 ALR 462.

[61] [2013] NSWCA 291.

[64] [2010] FCA 576; (2010) 187 FCR 151.

[65] [2013] NSWCA 291.

[66] [2010] FCA 576; (2010) 187 FCR 151.

[67] [2012] VSC 125; (2012) 88 ACSR 18.

[68] Ibid [70]-[71] (citations omitted).

[69] [2010] FCA 576; (2010) 187 FCR 151.

[70] Ibid 45-46 [78]-[80] (citations omitted).

[71] [2010] FCA 576; (2010) 187 FCR 151.

[73] [2010] FCA 576; (2010) 187 FCR 151.

[74] [2012] VSC 125; (2012) 88 ACSR 18

[77] [2013] VSC 365.

[78] [2010] FCA 576; (2010) 187 FCR 151.

[83] [2012] VSC 125; (2012) 88 ACSR 18.

[84] [2009] FCA 278; (2009) 175 FCR 373.

[85] [2013] VSC 365.

[86] Mier v FN Management Pty Ltd [2005] QCA 408; [2006] 1 Qd R 339; Treecorp [2009] FCA 278; (2009) 175 FCR 373; Willmott (No 2) [2012] VSC 125; (2012) 88 ACSR 18.

[87] Paragraphs (a) and (d) of the definition of scheme property Corporations Act s 9.

[90] This is set out in the 1995 prospectus - see above [14].

[94] See above [19].

[95] See above [20].

[96] See above [74].

[98] See above [74].

[99] See above [40].

[100] Shepard v Downey [2009] VSC 33; (2009) 69 ACSR 530 548-549 [97] - see above [87]. On appeal, Capelli v Shepard [2010] VSCA 2; (2010) 29 VR 242 270 [134]-[135] - see above [88].

[101] [2013] VSC 365.

[102] See above [30].

[103] See above [20].

[104] [2013] VSC 365.

[105] (2012) 88 ACSR 373.

[107] [2009] FCA 278; (2009) 175 FCR 373.

[108] See above [25].

[109] See the matters set out in [125] above.

[110] This accords with the reasoning of Gordon J in Treecorp [2009] FCA 278; (2009) 175 FCR 373 - see above [93].

[111] This is set out in the 1995 prospectus - see above [14].

[112] See the discussion at [93]-[94] above in relation to Treecorp [2009] FCA 278; (2009) 175 FCR 373, and [111]-[113] above in relation to Willmott (No 2) [2012] VSC 125; (2012) 88 ACSR 18.

[113] [2005] QCA 408; [2006] 1 Qd R 339 and see above [85].

[114] See above [78].

[115] [2010] FCA 576; (2010) 187 FCR 151.

[116] [2010] VSCA 2; (2010) 29 VR 242.

[117] [2001] NSWSC 1089; (2001) 187 ALR 462.

[118] [2010] FCA 576; (2010) 187 FCR 151.

[120] [2013] VSC 365.

[121] Australian Olive Holdings Pty Ltd v Huntley Management Ltd (2010) 185 FCR 97, 117-118 [83]-[84].

[122] [2010] VSCA 2; (2010) 29 VR 242 [143]. See above [89].

[123] Ibid [151]. See above [90].

[124] See above [151]-[153].

[125] See above [61].

[126] See above [146]-[147].

[127] See above [153].

[128] See above [57].

[129] See above [50]-[73].

[130] [1988] HCA 44; (1988) 165 CLR 107.