Australian Securities Commission v United Tree Farmers Pty Ltd
[1997] FCA 479
•2 Jun 1997
CATCHWORDS
CORPORATIONS LAW - Application for Declaration that the respondent companies together participated in offering investors ‘prescribed interests’ contrary to the corporations law - five respondent companies owned and operated by various members of a family - investors invited to enter into agreements with the second respondent for use of land for harvesting tea trees - investors at same time invited to enter agreement with first respondent for provision of management services for planting, tending etc of tea trees - investors also offered finance by a third respondent - whether the three respondents were involved in offering interests in the profits or assets of a scheme - meaning of scheme - meaning of interest in assets - whether less than proprietary interest sufficient - investors later introduced to fifth respondent as a company with the expertise to harvest tea trees - whether fifth respondent sufficiently part of scheme - remaining respondent provided land enabling second respondent to offer land to investors - whether that company sufficiently part of scheme.
Corporations Law, 1018(1); 1064(1); 1065(1)
Ashgrove Pty Ltd v Deputy Commissioner of Taxation (1994) 124 ALR 315
Australian Softwood Forests Pty Ltd v Attorney-General (NSW); Ex rel Corporate Affairs Commission (1981) 148 CLR 121
Permanent Trustee Australia Ltd v Shand (1992) 27 NSWLR 426
Securities and Exchange Commission v W J Howey Company 90 Led 1244 (1946)(US)
Warren v Nut Farms of Australia Pty Ltd [1981] WAR 134
Butt P, Land Law, (3rd Ed), Law Book Co, Sydney, 1996
Bradbrook, MacCallum and Moore, Australian Real Property Law, (2nd Ed), Law Book Co Sydney, 1997
Gray K, Elements of Land Law, (2nd ed) Butterworths, London, 1993
CORPORATIONS LAW - Appointment of manager and receiver - evidence of poor management and financial affairs of first respondent - preconditions for appointment of receiver satisfied - relevance of a voluntary change in management structure of company - appointment of receiver delayed to provide new management an opportunity to direct company to comply with law.
ASC v AS Nominees Ltd (1995) 133 ALR 1
Beach Petroleum NL V Johnson (1992) 9 ACSR 404
Corporate Affairs Commission v United International Technologies Pty Ltd (1987) 6 ACLC 637
AUSTRALIAN SECURITIES COMMISSION v UNITED TREE FARMERS PTY LTD & OTHERS
No AG3004 of 1996
FINN J
CANBERRA
2 JUNE 1997
IN THE FEDERAL COURT OF AUSTRALIA )
AUSTRALIAN CAPITAL TERRITORY )
DISTRICT REGISTRY ) No. AG3004 of 1996
GENERAL DIVISION )
IN THE MATTER OF UNITED TREE FARMERS PTY LTD
AUSTRALIAN COMPANY NUMBER (“ACN”): 000 497 183
& THE OTHER RESPONDENTS
AUSTRALIAN SECURITIES COMMISSION
Applicant
UNITED TREE FARMERS PTY LTD
(ACN 000 497 183)
First Respondent
TRANSGROWTH ASSOCIATION (AUST) LTD
(ACN 002 786 263)
Second Respondent
HYSWIN (NORTH) LIMITED
(ACN 010 979 549)
Third Respondent
SYFIND (FINANCES) PTY LTD
(ACN 001 961 940)
Fourth Respondent
TEA TREE OIL COMPANY OF NORTH QUEENSLAND PTY LTD
(ACN 057 437 028)
Fifth Respondent
COURT:FINN J
PLACE:CANBERRA
DATE: 2 JUNE 1997
MINUTES OF ORDERS
THE COURT ORDERS THAT:
the applicant file and serve proposed minutes of orders appropriate to reflect the reasons of the Court on or before close of business Friday 6 June 1997.
the proceedings be stood over to 9.30am Tuesday 10 June 1997 for the purpose of making orders.
Note:Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.
IN THE FEDERAL COURT OF AUSTRALIA )
AUSTRALIAN CAPITAL TERRITORY ) No. AG3004 of 1996
DISTRICT REGISTRY )
GENERAL DIVISION )
IN THE MATTER OF UNITED TREE FARMERS PTY LTD
AUSTRALIAN COMPANY NUMBER (“ACN”): 000 497 183
& THE OTHER RESPONDENTS
BETWEEN:AUSTRALIAN SECURITIES COMMISSION
Applicant
UNITED TREE FARMERS PTY LTD
(ACN 000 497 183)
First Respondent
TRANSGROWTH ASSOCIATION (AUST) LTD
(ACN 002 786 263)
Second Respondent
HYSWIN (NORTH) LIMITED
(ACN 010 979 549)
Third Respondent
SYFIND (FINANCES) PTY LTD
(ACN 001 961 940)
Fourth Respondent
TEA TREE OIL COMPANY OF NORTH QUEENSLAND PTY LTD
(ACN 057 437 028)
Fifth Respondent
COURT:FINN J
PLACE:CANBERRA
DATE: 2 JUNE 1997
REASONS FOR JUDGMENT
This is an application brought by the Australian Securities Commission (“the ASC”) seeking a declaration that the five respondent companies or else some of them have been participants in an investment scheme involving invitations to subscribe for “prescribed interests” in contravention of sections 1018(1), 1064(1) and 1065(1) of the Corporations Law. The respondent companies, and the abbreviated manner in which I will refer to each of them, are United Tree Farmers Pty Ltd (“United”), Transgrowth Association (Aust) Pty Ltd (“Transgrowth”), Hyswin (North) Ltd (“Hyswin”), Syfind (Finances) Pty Ltd (“Syfind”) and Tea Tree Oil Company of North Queensland Pty Ltd (“TTOCNQ”). I should add that of these only Transgrowth is a public corporation.
In addition to declaratory relief, the ASC seeks the appointment under s1323 of the Corporations Law of a receiver and manager of the property of United. In earlier interlocutory proceedings the respondents gave a series of undertakings to the Court in lieu of the award of injunctive relief. The ASC now seeks that injunctive relief.
Before referring both to the statutory provisions alleged to have been contravened and to the factual circumstances of the matter, it is appropriate to indicate in skeletal form the essence of the activity that has attracted this application.
In varying ways and in different degrees the five companies have some involvement in an activity - I use a neutral term - in which individual investors take individual “occupation interests” in strips of contiguous land on two properties in North Queensland one owned, one apparently sub-leased, by Transgrowth. The investors have their strips managed by United as a service company. Tea trees are planted and grown on the land. While no express agreement to harvest the trees for the purpose of extracting tea tree oil is offered as part of the investment package, such profit as is to be derived from the investment comes from projected oil production. The investment, which is marketed in a number of States (notably Queensland, Victoria and South Australia), is facilitated by the availability of financial services offered by Syfind. Save for a specific “partial harvest” done by United, to the extent that harvesting of trees has in fact been undertaken by a “group” company, this has been done by TTOCNQ. Hyswin’s part in the matter is that it is lessee of the property sub-leased by Transgrowth.
The ASC’s case is that this “package” involves the offering of a “prescribed interest” as defined in s9 of the Corporations Law. If such is the case then it is conceded that the prospectus and other provisions of the Corporations Law have not been complied with.
Given what is said to be the reality of the activity, it is alleged that Transgrowth (the property holder), United (the manager) and Syfind (the financier) at the least are participants in it. It is alleged additionally that TTOCNQ (the harvester) and/or Hyswin (the lessor to Transgrowth) are relevantly participants. In these latter claims, as will be seen, the alleged “association” of the various companies through their directors and members is advanced as being of real significance.
The Statutory Scheme
Section 1018(1) of the Corporations Law provides that:
“A person shall not offer for subscription, or issue invitations to subscribe for, securities of a corporation unless:
(a)a prospectus in relation to the securities has been lodged; ...”
The definition of “securities” in s92(1) extends to “prescribed interests” the definition of which is given below.
Section 1064(1) provides that:
“A person, other than a public corporation, must not make available, offer for subscription or purchase, or issue an invitation to subscribe for or buy, any prescribed interest.”
As already noted, of the five respondents only Transgrowth is a public corporation. It is in fact a public corporation limited by guarantee.
For its part, s1065(1) provides that:
“A person shall not issue, offer for subscription or purchase, or issue invitations to subscribe for or buy, any prescribed interest unless, at the time of the issue, offer or invitation, there is in force, in relation to the interest, a deed that is an approved deed for the purposes of this Division or a corresponding law.”
Section 9 defines “prescribed interest” to mean (inter alia), “a participation interest”. The latter is in turn defined (inter alia) as follows:
“participation interest” means any right to participate, or any interest:
(a)in any profits, assets or realisation of any financial or business undertaking or scheme whether in Australia or elsewhere;
(b)in any common enterprise, whether in Australia or elsewhere, in relation to which the holder of the right or interest is led to expect profits, rent or interest from the efforts of the promoter of the enterprise or a third party; or
(c) in any investment contract;
Whether or not the right or interest is enforceable, whether the right or interest is actual, prospective or contingent, whether or not the right or interest is evidenced by a formal document and whether or not the right or interest relates to a physical asset...”
It is the ASC’s case that the present circumstances fall within paras (a)(b) and (c) of this definition.
The Companies and their Interrelationship
The five companies are tied to each other through the familial relationships of members of the Korduba family presided over by Mr Roman Korduba. Insofar as concerns the shareholdings in the companies (other than Transgrowth which is limited by guarantee), those in United, Syfind and Hyswin are held at least in a majority by a daughter or daughters of Mr and Mrs Korduba. Those in TTOCNQ are held by one daughter and other members of her family. Mr Korduba was a director of United and Hyswin until the last months of 1996. Children of Mr and Mrs Korduba and their spouses and children make up almost all of the directors of the companies.
The only directors who provided evidence in the proceedings were a daughter (Mrs Hagarty) who is both the sole director of Syfind and one of three of Hyswin, and her husband (Mr Thompson) who, since December 1996, has been a director of United. Mrs Hagarty alone gave oral evidence. Mr Thompson’s affidavit evidence bears little on the matters of dispute between the parties.
From Mrs Hagarty’s evidence and from ASC records, the following would appear to be the case. All of the companies operate from the same office and utilised common secretarial services. Mr Korduba is said for all practical purposes to have run Syfind, Hyswin and United, although his involvement in the management of United is said to have ceased in November 1996.
Mrs Hagarty, I would note, professed a robust ignorance of the affairs of the companies and notably those of which she is a director.
The “Investment Scheme”
The tea tree oil venture, if I may so call it, is based on two pieces of property in North Queensland inland from Cairns. The one, known as the “Melaleuca Plantation”, is owned in fee simple by Transgrowth. The other, the “Masterton Plantation”, is the subject of a twenty year Crown lease to Hyswin commencing on 28 January 1984. Despite its length, it was said to have been sub-leased to Transgrowth on 1 February 1996 for a period of fifteen years. The validity of that sub-lease is not in dispute in these proceedings.
Each plantation has, save for access roads, been divided into blocks and then into strips of approximately 22 metres width and 180 metres length. These strips provided the basic subject matter of the investment offered to investors.
That investment had at its core a package of agreements of which an investor could avail. These were an “Occupation Agreement”, a “Plantation Development Agreement” and a “Finance Agreement”.
The investment was not marketed by the companies directly. Agents were engaged for the purpose. Representatives of those agents when soliciting investors apparently presented potential clients with the package of agreements. As I will later indicate there is also evidence that I accept that, whatever the formal instruction given at least by United to its agents, some number of those representatives conveyed to investors that a harvesting facility was being proffered as well. In so doing they were representing what they considered they had been led to believe was the investment they were to market. Investors, who in the main resided far from the plantations, reasonably relied upon this representation.
It equally is the case that, while investors took individual strips, what in substance was being marketed was participation in a projected larger plantation project.
The Occupation Agreement with Transgrowth
This agreement, at least in the examples exhibited in this proceeding, contained a standard form “demise” of land for a period of 10 years with a 5 year further term for a prescribed consideration. The land use was designated (in Item E of the Agreement) to be “Tea Tree Plantation” or “Melaleuca Alternifolia”. Attached to the “Occupation Permit” were the “Conditions of Permit”. For present purposes these included the terms (subject to minor variations) that:
“1.The Landholder hereby grants to the Occupier a Permit to enter upon the said land and plant, tend, grow, care for, cultivate, fell harvest and sell any form of agricultural crop or trees more particularly described in Item E for a Term as set out in Item F including an option to renew the Permit for a Further Term as may be agreed subject to a request for renewal being lodged with the Landholder not less than ninety (90) days prior to the termination of the current permit.
...
The Landholder shall at all times during the continuance of this Permit or until the termination as hereinafter provided retain the right to enter upon the said land for any purpose which does not interfere with the agricultural pursuits of the Occupier as more particularly described in Item E.
The Occupier agrees to cultivate and manage the said land in a proper and husbandry-like manner according to its use and not to use the land save for the purpose as set out in Item E and not to use or allow to be used the land for any illegal or objectionable purposes and not to carry on or allow or suffer to be carried on in the land any noxious or dangerous trade or do any act which is an annoyance or nuisance to the Landholder or adjoining owners or Occupiers.
...
11.In the event of the Occupier breaching any of the conditions of this Agreement, then the Landholder shall be entitled to give the Occupier notice of such breach and should such breach not be remedied by the Occupier within one (1)month from the date of service of such notice, then the Landholder may by notice in writing terminate this Agreement and exclude the Occupier from having the right to enter upon the said land, any rights to the crop growing on the land and such termination shall extinguish any caveatable interest which the Occupier may or may not have had in the said land.”
I would note that the agreement itself purports by way of a plan to identify the precise strip “demised”.
The Plantation Development Agreement with United
The burden of this agreement, into which investors were invited to enter along with the occupation agreement, is evidenced in its recitals (again subject to minor variations):
“WHEREAS the Farmer owns, leases, holds under licence/permit, or otherwise occupies certain land as described in the First Schedule hereto (hereinafter referred to as “the Land”) and is desirous of entering into the business of primary production and growing thereon a commercial plantation of Melaleuca Alternifolia.
AND WHEREAS the Company is prepared to provide management services (hereinafter referred to as “the Services”) to the Farmer and prepare Land for planting and to plant and tend seedlings thereon and tend, maintain and care for all commercial crops on the Land as hereinafter specified,”
For an agreed consideration, United agreed to provide and plant tea tree seedlings and to render designated services -
“... within 13 MONTHS of the date hereof subject to unforeseen circumstances beyond the control of the Company or adverse weather conditions within such longer period as is required without further charge.”: (underlining in original)
The agreed services included:
“a.Removal by stacking, burning or other means of the greater part of any dead or living trees and scrub remaining on the Land after initial clearing.
b.Ploughing if necessary to control growth of unwanted vegetation.
c.Ripping if necessary to improve planting conditions.
d.Poisoning of vermin rabbits and noxious weeds likely to substantially affect the success of the plantation.
e.Construction of or maintenance of existing boundary firebreaks where necessary and vehicular access tracks sufficient for establishment and tending of the plantation.”
I would note in passing that the services did not include the harvesting and/or marketing of the tea trees or tea tree oil.
The “Marketing Instructions” United gave its agents for the Plantation Development Agreement was (in part) in the following terms:
“We reiterate that these are to form the sole basis for promoting the service of United Tree Farmers Limited. Any other informative material you may have from the company or from elsewhere (including from Government sources) should not be used in conjunction with the Plantation Development Agreement in generating contracts of the services of United Tree Farmers Limited.
It has to be clearly explained to existing growers and potential clients that any services by United Tree Farmers Limited are offered on a strictly individual basis to persons interested in the establishment or tending or horticultural or other agricultural projects including pine, pistachio or coffee plantations. Growers should be made aware that each individual Agreement refers exclusively to a particular parcel of land (whether acquired by them by way of purchase, lease, licence, occupation permit or otherwise,) and is in no way related to any other development on any other land, neighbouring, in the same region or elsewhere.
As can be seen from the sample Plantation Development Agreement enclosed, United Tree Farmers Limited involvement ceases with the expiration of the Agreement and thereafter owners/growers are entirely at liberty to make their own arrangements for management, supervision, harvesting, marketing of the crop etc, without any restriction by United Tree Farmers Limited.”: (underlining and bold in original)
The Finance Agreement with Syfind
This was an optional facility offered to investors for the provision of finance for the investment. It took the form of a loan agreement together with the grant of a security by the borrower/investor over his or her tea tree strip. The security was in the terms (inter alia) that:
“For the purpose of securing to the Lender the payment of the principal sum and interest thereon, the Borrower hereby mortgages to the Lender all the Borrower’s estate and interest in any Licence Agreement or Plantation Development Agreement entered into by the Borrower in respect of the land referred to in item 2 of the Schedule herein ... .”
On the documentary evidence there would appear to have been 42, 105 and 208 Occupation Agreements and Plantation Development Agreements entered into each year ending 30 June 1994, 1995 and 1996 and 42, 105 and 137 Finance Agreements. Of the 208 investors in the 1995-1996 financial year, for example, 37 were from South Australia, 69 from Victoria, 78 from Queensland and the balance from elsewhere in Australia.
The Marketing of the Scheme/The Harvesting of the Tea Trees
Affidavit evidence was provided by several persons who, though not employees of any of the companies, marketed the investment packages. Like evidence was given by some number of investors. This material was quite voluminous. It is clear from this material that these investors had represented to them, and they had the expectation, that the investment would produce the composite benefits of (a) tax deductions/refunds and (b) returns from the harvest of the trees. It was this combination which was in fact held out to some as providing the means to repay the loans from Syfind.
I have earlier noted that the investors themselves resided, in the main, far from North Queensland. It is reasonable to infer that in making their investments they wished to secure financial advantages (taxation and otherwise). Whether they would have anticipated that they would actually be required to involve themselves directly in, or else to arrange, the management (beyond the initial period of agreement with United), harvesting, distillation and marketing of their “strips” and their produce is altogether another matter.
As I have noted, the ASC has tendered the evidence of several marketing agents and of a number of investors. From this, as also from the conduct in particular of Mr Korduba and of United and TTOCNQ subsequent to some of these investors making their investment, I am asked to infer that, whatever the formal documentation might have suggested to the contrary, the overall scheme of the investment being offered to the investors was one in which a harvesting-distillation-marketing facility was being offered to them.
Here I will simply note the tenor of that evidence and my conclusions on it.
(1) Despite the absence of any reference in the agreements that harvesting of the trees, distillation of the product and the marketing of it would be provided, or organised by, any one or more of the respondent companies, I find that the manner in which the investment was marketed reasonably created the expectation in the minds of some number at least of the investors that these services would be made available to them as an aspect of, or element in, the investment they were being asked to make.
I am prepared to infer, moreover, that the companies propounding the scheme, despite the formal disavowal of this, were aware that this expectation was likely to be created; acted in some instances so as positively to encourage it; and, on the balance of probabilities intended that it be created in any event. I note, particularly in relation to the last of these that the respondents have declined to have evidence given by persons associated with the companies - and notably by Mr Korduba - who could have illuminated the actual intent of the respondents. I would also note that several of the investors gave evidence of communications with Mr Korduba directly concerning their expectation of a harvest or else of receipt of returns. There is no evidence to suggest they were disabused by him of their expectations.
The evidence of those agents involved in the marketing of the scheme was that each understood that United would organise the harvesting of the trees. Significantly one of these agents, Mr Sereika, purchased twenty-one strips himself. He had that understanding.
In the event then I find that the investment scheme offered was one which would extend to having a harvesting etc service made available to investors.
(2) It is the case that some investors were provided with the proceeds of what has been described as a “fortuitous harvest” of their strip - a harvest, moreover, that the investors concerned were not asked to authorise. It was alleged, implausibly, that this harvest was justified by the terms of the Plantation Development Agreement.
(3) It equally is the case that in September 1996 United contacted some investors informing them that it had given their names to TTOCNQ which in turn wrote and agreed with the investors to harvest their strips.
Before turning to the issues of law raised, I should note the following about tea trees and their harvesting. The expert evidence is that a tea tree oil business (as here) characteristically involves (a) the planting of seedlings; (b) their tending until they reach 1.5-2.2 metres; (c) their harvesting by cutting the stems near the ground; and (d) the reduction of the cuttings to small sections which are then distilled to produce the oil. The trees regenerate from the stem remaining in the ground and the production cycle is repeated with three harvests to be expected in every two years.
A Prescribed Interest?
It is convenient first, to consider this matter in relation to the companies that were, as a rule, immediate parties to the initial investor agreements - ie Transgrowth, United and Syfind.
Despite the submissions to the contrary, this I consider to be a clear case of a scheme involving the utilisation by investors of the land, management services and lending capacity of the three companies respectively in the generation of profits and other advantages for those investors from the development and exploitation of tea tree plantations. A “participation interest”, in other words, was being offered investors in that they were being asked to subscribe for a right to participate in, or an interest in, the profits and assets of the scheme prosecuted by at least the three companies: see the s9 “participation interest” definition, esp para (a).
In Australian Softwood Forests Pty Ltd v Attorney-General (NSW); Ex rel Corporate Affairs Commission (1981) 148 CLR 121, Mason J indicated of the then para (a) definition of a “[participation] interest” that - (at 129 and 133) -
(1)“all that the word ‘scheme’ requires is that there should be ‘some programme, or plan of action’”;
(2)“[i]t is not an objection to an enterprise qualifying as ... [a] scheme that it consists of a number of parts or elements, the participation of individual parties being limited to one of these parts or elements;” and
(3)“[the] association of the word ‘interest’ with the expression ‘right to participate’ provides additional support for the view that it [ie ‘interest’] has a larger content than that of a proprietary interest”: see also Van Riesema v Havel (1987) 5 ACLC 751.
It is clear in my view that at least the three companies, in concert, have evolved a scheme involving the invitation to investment in a “venture” to individual elements of which they each, severally, would contribute. That venture at the minimum involved the exploitation of the two “plantation” properties and in a manner which would optimise the participation of the three companies when individual investments were made.
Given the view I take of the matter, it would not matter if that scheme was limited to the creation and development of a tea tree plantation composed of the aggregate of the individual strips invested in by subscribers. Even if so limited, the subscribers would have a “right to participate, or [an] interest” in the assets of the scheme as I will later indicate. But in any event, as I have already found, the facility being offered investors must be taken as extending to the provision of the means for harvesting, distilling and marketing the oil - ie it extended to a right to participate in the “profits” of the scheme.
The respondents’ submissions were that (i) the individual investors did not obtain any “interest” in the scheme offered and in this contended that the agreements did not create a profit a prendre; (ii) all that was given was individual and discrete contractual rights of occupation; (iii) each investor entered into a discrete management agreement; and (iv) harvesting etc was not part of the service offered or acquired.
The burden of this, as I understand it, is that the investors could not be said to have a right to participate in, or an interest in the assets of, the scheme - the submissions being premised upon the proposition that absent a right to have the crop harvested the scheme (or “business”) was merely one for use of the land and planting and development of each individual strip.
I have already held that the scheme encompassed harvesting, distillation and marketing of an investors’ trees. I am also of the view that the scheme was one which, relevantly, gave (a) a right to participate in the profits of the scheme - in that harvesting for profit was a facility the investors could reasonably expect would be made available to them in consequence of their investing in the scheme: cf Securities and Exchange Commission v W J Howey Company 90 Led 1244 (1946)(US); and (b) an interest in the land and/or trees grown, being assets of the scheme.
As to the latter it may be the case that the investors did not have a profit a prendre in the land, albeit for technical reasons relating to the nature of profits: see Permanent Trustee Australia Ltd v Shand (1992) 27 NSWLR 426 at 431-432 but cf Warren v Nut Farms of Australia Pty Ltd [1981] WAR 134; on profits see generally P Butt, Land Law, 457 ff, Law Book Co, Sydney, 1996 (3rd Ed); Bradbrook, MacCallum and Moore, Australian Real Property Law, para 17.41, Law Book Co Sydney, 1997 (2nd Ed); K Gray, Elements of Land Law, Ch 21, (2nd ed) Butterworths, London, 1993; and see Ashgrove Pty Ltd v Deputy Commissioner of Taxation (1994) 124 ALR 315. Be this as it may, and while I incline to the view that, if no profit was created, the Occupation Agreement in all probability created a licence coupled with an interest of a proprietary character: cf Gray, above, 899-900; it clearly confers such right to, or “interest” in, the land and/or the trees (whether before or after harvesting) as would fall within the expansive (ie non-proprietary interest) sense of the term as used in the definition of “participation interest” in s9 of the Corporation Law: see Australian Softwood Pty Ltd v Attorney-General (NSW), above, 129 ff.
This conclusion makes it strictly unnecessary to consider whether, as submitted by the ASC, the circumstances fell as well within paras (b) and (c) of the definition of ”participation interest”. Here all that I need indicate is that, in relation to the three companies, the circumstances (on my findings) come within para (b). I refrain from comment on para (c).
TTOCNQ and Hyswin
My conclusions here can be briefly stated. Hyswin’s involvement in the matter was, on the evidence, limited to sub-leasing its land to Transgrowth. While it could well be said that this action was a prerequisite to a significant part of the scheme, and while there may be grounds for suspecting that it was a participant in the setting up of the scheme in so making its land available, I do not consider it properly can be inferred that in fact it was a participant. Though no relevant evidence was put on by this respondent, Jones v Dunkell (1959) 101 CLR 298 cannot be invoked to transform speculation into inference.
If Hyswin so falls on the “safe” side of the line TTOCNQ does not. I am prepared to infer on the admittedly slender evidence that it was the instrument contemplated by United as available to conduct the harvest etc if needed. Such in fact occurred in 1996. Given the family connections between the companies, and the actions actually taken by United and TTOCNQ as noted earlier, I consider that the absence of explanation by this respondent, reinforces the inference I am prepared to draw.
My conclusion then is that Transgrowth, United, Syfind and TTOCNQ, but not Hyswin, carried on a scheme involving offers or invitations to subscribe for or buy prescribed interests occasioning contravention of sections 1018, 1064 and 1065 of the Corporations Law.
Relief
I will make a declaration relating to the contraventions noted above.
As I earlier noted, the ASC has sought as well the appointment of a receiver and manager of the property of United. It has in consequence adduced evidence which it alleges strongly suggests (a) significant, incompetent management of the companies generally; and (b) grounds for concern about the financial affairs of the companies.
It is clear that the three jurisdictional preconditions of s1323(1)(a) of the Corporations Law are met in this case: see Corporate Affairs Commission v United International Technologies Pty Ltd (1987) 6 ACLC 637 at 642. It likewise is clear as I have found that there have been, and continue to be, significant breaches of the Corporations Law. There is, furthermore, evidence indicating likely mismanagement by Transgrowth and United in relation to individual investors - this being manifest in changes to the strips allegedly allocated to investors, in planting delays, and in failure to produce returns. This in turn raises possible concern about the management of the scheme itself and its overall competence. The ASC has relied on incompetent management as providing reason for making an appointment: see ASC v AS Nominees Ltd (1995) 133 ALR 1 at 55. Relatedly, the ASC has sought to call into question the financial status and inter-company dealings of members of the group: cf Beach Petroleum NL V Johnson (1992) 9 ACSR 404. This last in particular is contested by the respondents.
I do not consider it necessary here to enter upon the evidence the ASC alleges so makes it “necessary or desirable” to appoint a receiver of United alone or, for that matter, such evidence as has been adduced by the respondents (mostly financial) in contest of this.
As I earlier indicated, Mr Korduba is no longer involved by way of office holding or otherwise in the practical management of United. Since December 1996 that company has a newly constituted board, albeit one tied in the main to the Korduba family. That board should, on balance, be given its opportunity to regularise matters insofar as United is concerned. As has often been recognised, the appointment of a receiver and manager “is a drastic step not lightly to be taken”: Beach Petroleum NL v Johnson, above, at 406.
Having said this I am nonetheless prepared in the present instance to countenance such an appointment - but for reasons somewhat different to those initially raised by the ASC. As I indicated at the hearing, the clear immediate need is that prompt steps be taken to bring to an end the present, continuing contraventions of the Corporations Law and to provide investors at last with the protections the statute envisages they should have. Those contraventions involve four of the respondents, not merely United. To ensure the steps noted are taken expeditiously may ultimately make it “necessary or desirable” to appoint a receiver and manager to United.
I intend to give the parties a twenty eight day period within which the involved respondent companies are to settle proposals with the ASC to the ASC’s satisfaction that will secure compliance with the Corporations Law in this matter. I will order the appointment of a receiver and manager of United and if such compliance does not occur within that time, that appointment will take effect from the expiry of that time for the purpose of facilitating that company’s taking appropriate action to secure its compliance with the Corporations Law.
While I will make a declaration relating to the contraventions, I will invite the applicant to bring in proposed minutes of orders to give effect to these reasons in relation both to the declarations to be made and to the appointment of a receiver and manager of United. I also will invite submissions on the future of the undertakings presently in place and on the need, if any, for their replacement by injunctions unless and until the contraventions of the Corporations Law are remedied.
I certify that this and the preceding 23 pages are a true copy of the Reasons for Judgment herein of the Honourable Justice Finn.
Associate
Dated: 30 May 1997
Counsel for the applicant : C Erskine
Solicitors for the applicant : Christopher J Hudson on behalf of the Australian Securities Commission
Counsel for the respondent : M Walton
Solicitors for the respondent : Barker Gosling
Date of hearing : 24, 25, 26 February 1997
Date of judgment : 2 June 1997
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