ASIC v Matthews [2009] NSWSC 77 (25 February 2009)

Last Updated: 26 February 2009

NEW SOUTH WALES SUPREME COURT

CITATION:
ASIC v Matthews [2009] NSWSC 77


JURISDICTION:
Equity Division
Corporations List

FILE NUMBER(S):
1635/00

HEARING DATE(S):
08/12/08, 09/12/08

JUDGMENT DATE:
25 February 2009

PARTIES:
Australian Securities and Investments Commission - Plaintiff
Stephen Lewis Matthews - Defendant

JUDGMENT OF:
Barrett J

LOWER COURT JURISDICTION:
Not Applicable

LOWER COURT FILE NUMBER(S):
Not Applicable

LOWER COURT JUDICIAL OFFICER:
Not Applicable



COUNSEL:
Mr D R Stack - Plaintiff
Mr R W Killalea - Defendant

SOLICITORS:
Conrad Gray - Plaintiff
Defendant in person


CATCHWORDS:
PROCEDURE - contempt - alleged contravention of permanent injunctions - construction of orders - CORPORATIONS - conduct relating to solicitation of investment in securities - "undertake" a "business" - content of such business

LEGISLATION CITED:
Company Law Review Act 1998 (Cth), s 3
Corporations Act 2001 (Cth), ss 726, 911A, 911B,
Corporations Law, ss 9. 77(1), 92, 93(1), 93(4), 119, 780(1), 781(a), 1019, 1413

CATEGORY:
Principal judgment

CASES CITED:
Athens v Randwick City Council [2005] NSWCA 317; (2005) 64 NSWLR 58
Attorney General v The Mutual Home Loans Fund of Australia Ltd [1971] 2 NSWLR 162
Australian Softwood Forests Pty Ltd v Attorney General [1981] HCA 49; (1981) 148 CLR 121
Bank of New South Wales v The Commonwealth [1948] HCA 7; (1948) 76 CLR 1
Chappius v Filo (1990) 19 NSWLR 490
Dungate v Lee [1969] 1 Ch 545
Hyde v Sullivan [1956] SR (NSW) 113
Metcash Trading Ltd v Bunn (No 5) [2009] FCA 16
R v Bodsworth (1968) 87 WN (NSW) (Pt 1) 290
Royal Bank of Canada v Inland Revenue Commissioners [1972] Ch 665
Western Gold Mines NL v Commissioner of Taxation (WA) [1938] HCA 5; (1938) 59 CLR 729

TEXTS CITED:


DECISION:
The charges in paragraphs 2 and 5 of amended statement of charge are made out. It is determined that the defendant is guilty of contempt of court accordingly. The remaining charges in the amended statement of charge are not made out.



JUDGMENT:

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


BARRETT J

WEDNESDAY 25 FEBRUARY 2009

1635/2000 AUSTRALIAN SECURITIES AND INVESTMENTS COMMISSION v STEPHEN LEWIS MATTHEWS

JUDGMENT

Preliminary

1 The plaintiff (“ASIC”) contends that the defendant is guilty of contempt of court because of his action in sending by post approximately 1,650 letters each addressed to the trustee or trustees of a self-managed superannuation fund. Each letter was sent on or about 13 June 2008 and was in these terms:

“I am a management consultant to the investment industry with a focus on the corporate governance requirements of ASX listed entities. In this role I encounter numerous investment opportunities.

Recently one of my clients (a former senior manager in risk management for Westpac) alerted me to some work he had done for a private equity firm. It concerned the evaluation of risk management practices for an ASX listed company which last year acquired a complementary business. The business is generating high profits. It will benefit from any further tightening of the credit markets.

The subject company is an Australian brand name in its industry with high public recognition. It pays dividends and is presently trading on ASX at a multiple of 4Xtimes it’s [sic] after tax earnings guidance for 2008.

Whilst it’s true that the credit crisis has thrown up numerous opportunities I am yet to see one trading at these attractive prices. Accordingly I have maxed out my available resources to acquire as of today an interest in 400,000 shares in the subject company. I have available to me a margin loan facility which requires presently a minimum 10% equity to loan margin for shares in the subject company. I intend to exit my investment in this company once its share price is trading at 6Xtimes its earnings per share. For a $10,000 investment (the minimum) this scenario would imply an after tax franked dividend return to the investor of $12,000, plus return of capital/loan.*

I am keen to increase my interest in this company and I am wondering if your SMSF could be interested to partner with me as lender or share investor in a new company vehicle which would acquire additional shares in the target company.

I am

Yours faithfully

[Signature]

Stephen L Matthews

* assuming that interest rates remain unchanged and exit occurs within 3 months.”

2 The only factual question is whether the defendant sent the 1,650 letters as alleged. He admits that he did so. That matter is accordingly proved beyond reasonable doubt.

3 It is the contention of ASIC that the defendant, by sending the letters to the superannuation fund trustees, contravened one or more of Orders 8, 10 and 12 forming part of the orders made by the court on 4 October 2000 as follows:

“By consent the Court:

1. Declares that the following documents (‘the Securities Reports’) constitute securities reports within the meaning of the Corporations Law:

(a) The documents being annexures ‘D’ to ‘H’ to the affidavit of Mr Simpson sworn on 16 February 1999;

(b) The documents being annexures ‘A’ to ‘G’ to the affidavit of Ms Good sworn on 19 March 1999 [No 5];

(c) The documents being annexures ‘D’, ‘E’, ‘F’, ‘G’, ‘H’ and ‘I’ to the affidavit of Mr Simpson sworn on 18 March 1999 [No 2]:

(d) The documents being annexures ‘C’, ‘F’, ‘H’, ‘I’, ‘J’, ‘M’, ‘O’, ‘P’ and ‘Q’ to the affidavit of Mr Lapworth sworn on 12 August 1999.

2. Declares that the following documents (‘the Advice Reports’) constitute advice to others about securities:

(a) The documents being annexures ‘D’, ‘F’, ‘H’, ‘I’, ‘K’, ‘L’, ‘M’ and ‘N’ and ‘Q’ to the affidavit of Mr Lapworth sworn on 12 August 1999.

3. Declares that the Respondent has breached section 781 of the Corporations Law by carrying on an investment advice business by publishing the Securities Reports and the Advice Reports in circumstances where the Respondent was neither a ‘licensee’ nor an ‘exempt investment adviser’.

4. Declares that the following documents (‘the Invitation Documents’) contain an invitation to subscribe for securities and an offer of securities in corporations which had not been formed:

(a) The documents being annexures ‘A’, ‘C’ and ‘D’ to the affidavit of Mr Simpson sworn on 18 March 1999 [No 3].

5. Declares that the Respondent has breached section 1019 of the Corporations Law by issuing the Invitation Documents in circumstances where the following corporations had not been formed:

(a) ‘chimesnews.com Limited’; and

(b) ‘chimes.com.au Limited’.

6. Declares that the Respondent has by publishing the following documents (‘the Offer Documents’) dealt in securities:

(a) The documents being annexures ‘E’ to ‘J’ to the affidavit of Mr Lapworth sworn on 3 March 2000.

7. Declares that the Respondent has breached section 780 of the Corporations Law by carrying on a securities business by publishing the Offer Documents in circumstances where the Respondent did not hold a ‘dealers licence’ nor was an ‘exempt dealer’.

8. Orders that the Respondent be permanently restrained from undertaking, either directly or indirectly, the business of:

(a) advising other persons about securities; and/or

(b) publishing securities reports,

except as otherwise permitted by the Corporations Law.

9. Orders that the Respondent be permanently restrained from undertaking, either directly or indirectly, the business of:

(a) advising other persons about securities on the internet; and/or

(c) publishing securities reports on the internet,

except as otherwise permitted by the Corporations Law.

10. Orders that the Respondent be permanently restrained from issuing invitations to subscribers for securities and/or offering securities in corporations which have not be formed except as otherwise permitted by the Corporations Law.

11. Orders that the Respondent be permanently restrained from issuing on the internet invitations to subscribe for securities and/or offering securities on the internet in corporations which have not been formed except as otherwise permitted by the Corporations Law.

12. Orders that the Respondent be permanently restrained from undertaking, either directly or indirectly, the business of dealing in securities except as otherwise permitted by the Corporations Law.

13. Orders that the Respondent be permanently restrained from undertaking, either directly or indirectly, the business of dealing in securities on the internet except as otherwise permitted by the Corporations Law.

14. Dissolves the orders made by Justice O’Connor in the Federal Court of Australia on 19 February 1999 and which were confirmed as orders of the Supreme Court of New South Wales by Justice Austin on 26 July 1999.

15. Dissolves the orders made by Justice Santow on 6 March 2000.

16. Each party pay their own costs.”

The statement of charge

4 The amended statement of charge filed by ASIC is as follows:

“1. By order 8 (‘Order 8’) of the Orders made by the Honourable Justice Santow on 4 October 2000, the Defendant, Stephen Lewis Matthews, was permanently restrained from undertaking, either directly or indirectly, the business of

(a) advising other persons about securities, and/or

(b) publishing securities reports, being an analysis or report about securities,

except as otherwise permitted by the Corporations Law (which properly construed includes its replacement, the Corporations Act 2001).

2. The Defendant, Stephen Lewis Matthews, is guilty of contempt of this Court in that, in breach of Order 8, on or about 13 June 2008, the Defendant directly undertook the business of advising other persons about securities by posting a letter dated 13 June 2008 to approximately 1,650 persons, who were the trustees of self managed superannuation funds, through which the Defendant recommended that the recipients acquire shares in a company presently trading on the Australian Stock Exchange which was ‘an Australian brand name in its industry’ and which had ‘high public recognition’ by or through:

(a) lending monies to the Defendant or a ‘new company vehicle’ established by or to be established by the Defendant; and/or

(b) acquiring shareholders in a ‘new company vehicle’ established by or to be established by the Defendant,

which was not permitted by the Corporations Law or by its replacement, the Corporations Act 2001.

3. The Defendant, Stephen Lewis Matthews, is guilty of contempt of this Court in that, in breach of Order 8, on or about 13 June 2008, the Defendant directly carried on the business of publishing securities reports by posting a letter dated 13 June 2008 to approximately 1,650 persons who were the trustees of Self Managed Superannuation Funds, through which the Defendant analysed and reported on shares in a company presently trading on the Australian Stock Exchange which was ‘an Australian brand name in its industry’ and which had ‘high public recognition’.

4. By order 12 (‘Order 12’) of the Orders made by the Honourable Justice Santow on 4 October 2000, the Defendant, Stephen Lewis Matthews, was permanently restrained from undertaking, either directly or indirectly, the business of dealing in securities except as otherwise permitted by the Corporations Law (which properly construed includes its replacement, the Corporations Act 2001.)

5. The Defendant, Stephen Lewis Matthews, is guilty of contempt of this Court in that, in breach of Order 12, on or about 13 June 2008, the Defendant directly undertook the business of dealing in securities by posting a letter dated 13 June 2008 to approximately 1,650 persons, who were the trustees of self managed superannuation funds, through which the Defendant made or offered to make an agreement and, attempted to induce the recipients to make or to offer to make, an agreement:

(a) for or with respect to acquiring and/or subscribing for; and/or

(b) the purpose or purported purpose of which was to secure a profit or gain through acquiring and/or subscribing for,

shares in a company presently trading on the Australian Stock Exchange which was ‘an Australian brand name in its industry’ and which had ‘high public recognition’ by or through:

(c) lending monies to the Defendant or a ‘new company vehicle’ established by or to be established by the Defendant; and/or

(d) acquiring shareholders in a ‘new company vehicle’ established by or to be established by the Defendant,

which was not permitted by the Corporations Law or by its replacement, the Corporations Act 2001.

6. Further the Defendant, Stephen Lewis Matthews, is guilty of contempt of this Court in that, in breach of Order 12, on or about 13 June 2008, the Defendant directly undertook the business of dealing in securities by posting a letter dated 13 June 2008 to approximately 1,650 persons, who were the trustees of self managed superannuation funds, through which the Defendant made or offered to make an agreement, and attempted to induce the recipients to make or to offer to make, an agreement:

(a) for or with respect to acquiring and/or subscribing for; and/or

(b) the purpose or purported purpose of which was to secure a profit or gain through acquiring and/or subscribing for,

shares in a ‘new company vehicle’ established by or to be established by the Defendant, which was not permitted by the Corporations Law or by its replacement, the Corporations Act 2001.

7. By order 10 (‘Order 10’) of the Orders made by the Honourable Justice Santow on 4 October 2000, the Defendant, Stephen Lewis Matthews, was permanently restrained from issuing invitations to subscribe for securities and/or offering securities in corporations which have not been formed except as otherwise permitted by the Corporations Law (which properly construed includes its replacement, the Corporations Act 2001).

8. The Defendant, Stephen Lewis Matthews is guilty of contempt of this Court in that, in breach of Order 10, on or about 13 June 2008, the Defendant posted a letter dated 13 June 2008 to approximately 1,650 persons, who were the trustees of self managed superannuation funds, through which the Defendant issued invitations to subscribe for shares and/or offered shares in a ‘new company vehicle’ which had not been formed and which was not otherwise permitted by the Corporations Law or by its replacement, the Corporations Act 2001.”

The applicable legal principles

5 These were usefully and succinctly stated in the recent judgment of Finn J in Metcash Trading Ltd v Bunn (No 5) [2009] FCA 16 (20 January 2009) at [9]:

“First, the order alleged to be breached must be clear and unambiguous: see Australian Consolidated Press Ltd v Morgan (1965) 112 CLR 483 at 515-516; and be capable of being complied with: see Australian Prudential Regulation Authority v Siminton (No 7) [2007] FCA 1609 at [40]. Secondly, the proper construction of an order is not a matter of fact but a question of law: Universal Music Australia Pty Ltd v Sharman Networks Ltd (2006) 150 FCR 110 at [19]. Thirdly, it is not necessary for an applicant to prove that an alleged contemnor intended to disobey the order: ibid, at [17]; nor is it necessary to prove that the alleged contemnor understood the true meaning of the terms of an order or that he or she was aware that his or her conduct constituted a breach of the order: Microsoft Corporation v Marks (No 1) (1996) 69 FCR 117 at 143. Nonetheless it may be highly relevant to the question of penalty that the alleged contemnor disobeyed an order because he or she placed a construction on it that was not its true construction: Universal Music Australia Pty Ltd at [38]. Fourthly, deliberate conduct which is in breach of a court order will constitute wilful disobedience of the order, and therefore a civil contempt, unless the conduct be casual, accidental or unintentional: Louis Vuitton Malletier SA v Design Elegance Pty Ltd (2006) 149 FCR 494 at [6]. Fifthly, the facts in issue in a contempt charge must be proved beyond reasonable doubt: Witham v Holloway (1995) 183 CLR 525 at 534.”

Approach to the construction of the orders

6 As Finn J stated in the second of the principles he mentioned, the proper construction of an order said to have been disobeyed is a question of law. Orders 8, 10 and 12 are restraining orders. They enjoin certain forms of conduct by the defendant. The restraints are permanent. Orders 8, 10 and 12 follow a number of declarations concerning breaches of identified statutory provisions by the defendant by reason of conduct on his part declared to be within the scope of the statutory provisions.

7 Orders 8, 10 and 12 employ terminology also used in the earlier declarations. Thus, order 8 refers to “the business of ... advising other persons about securities” and “the business of ... publishing securities reports”. Order 10 refers to “issuing invitations to subscribe for securities ... in corporations which have not been formed”. Order 12 refers to “undertaking, either directly or indirectly, the business of dealing in securities”.

8 The order 8 terminology is also found in the declarations 1, 2 and 3. The order 12 terminology is found in declarations 6 and 7. The declarations related the particular forms of conduct to particular provisions of the Corporations Law as they stood when the declarations were made on 4 October 2000.

9 It is thus clear (and I did not understand either party to dispute) that the several restraining orders are to be construed in the light of the preceding declarations and that the references in the restraining orders to acts and activities of a kind with which provisions of the Corporations Law referred to in the declarations were relevant are to be construed in the light of those Corporations Law provisions as they existed on 4 October 2000 or at an earlier time relevant to the conduct of the defendant.

10 This approach is consistent with that taken by the Court of Appeal in Athens v Randwick City Council [2005] NSWCA 317; (2005) 64 NSWLR 58 where it was held that a reference to “back-packer accommodation” in a court order took its meaning from the judgment in the proceedings in which the order was made, which judgment itself obviously adopted the meaning of “back-packer accommodation” in an applicable planning instrument.

Construing Order 8

11 Order 8 is expressed in terms clearly traceable to s 77(1)(a) of the Corporations Law (“a business of advising other persons about securities”) and s 77(1)(b) (“a business in the course of which the person publishes securities reports”) as they stood on 4 October 2000. These descriptions refer to the distinct aspects of what s 77(1) defined as “investment advice business”, a definition relevant to s 781(a) which said that a person must not “carry on investment advice business”. The term “securities report” was defined by s 9 as “an analysis or report about securities”. “Securities” was defined by s 92.

12 When read in the light of the obviously envisaged statutory provisions, Order 8 enjoined the “undertaking, directly or indirectly” of a business of “advising other persons about securities” (as defined by s 92) or of “publishing analyses or reports about securities” (as defined by s 92) or of engaging in both those activities.

13 The Corporations Law provisions prohibited conduct of the relevant kind by a person not licensed under or exempted by the legislation. The absolute terms of the order may be taken to reflect the defendant’s status as neither licensed nor exempted.

14 The s 92 definition of “securities” referred to “shares in, or debentures of, a body”: s 92(1)(b). The expression “body” was defined by s 9 so as to include “a body corporate”, which expression included, as at the time of the making of the orders of 4 October 2000, both a company formed and registered as such under the Corporations Law (s 119) and a company registered (or taken to be registered) as such before the commencement of s 3 of the Company Law Review Act 1998 (Cth) under the Corporations Law then in force: s 1413 – as well as any other body corporate – for the time being in existence.

15 The expression “securities”, when used in Order 8 (and, I might say, throughout the orders of 4 October 2000) therefore included a reference to shares in a company then existing by virtue of registration or deemed registration under the Corporations Law and shares in any other body corporate then existing. It follows that references to “securities” did not include references to securities of a body not in existence subject, however, to one qualification. Order 10 referred expressly to “securities in corporations which have not been formed” and must, for that reason, be taken to employ an extended meaning of “securities”.

16 Order 8, like Order 10 and Order 12, is subject to a concluding qualification:

“... except as otherwise permitted by the Corporations Law.”

Construing Order 10

17 Order 10 is expressed in terms clearly traceable to s 1019 of the Corporations Law as it stood until 12 March 2000. That section said that a person must not “issue a form of application for the issue of, or an invitation to subscribe for, securities of a corporation that has not been formed” or “offer securities of a corporation that has not been formed for subscription”.

18 Order 10 must therefore be construed according to the concepts of “corporation”, “offer”, “invitation” and “subscribe” that applied in October 2000 for the purposes of these statutory purposes, together with the extended concept of “securities” to which I have referred at paragraph [15] above.

19 Again there is the concluding qualification:

“... except as otherwise permitted by the Corporations Law.”

Construing Order 12

20 Order 12, restraining the defendant from “undertaking ... the business of dealing in securities”, is based on a combination of ss 780(1) and 93(1) of the Corporations Law and the s 9 definition of “deal” as existing on 4 October 2000.

21 Section 780(1)(a) said that a person not appropriately licensed or exempted must not “carry on a securities business”. Section 93(1) said that a “securities business” is a “business of dealing in securities”. The s 9 definition of “deal”, as it related to securities, was:

“in relation to securities—subject to subsection 93(4), means (whether as principal or agent) acquire, dispose of, subscribe for or underwrite the securities, or make or offer to make, or induce or attempt to induce a person to make or to offer to make, an agreement:

(i) for or with respect to acquiring, disposing of, subscribing for or underwriting the securities; or

(ii) the purpose or purported purpose of which is to secure a profit or gain to a person who acquires, disposes of, subscribes for or underwrites the securities or to any of the parties to the agreement in relation to the securities.”

22 The effect of the qualification concerning s 93(4) was that any act or acts done by the relevant person that constitutes or together constitute a dealing by the person in a futures contract must be disregarded. In the present context, the qualification may be disregarded as irrelevant and inapplicable.

23 Order 12 must be approached on the basis that it prohibits conduct of the kind that s 780(1) of the Corporations Law prohibited on 4 October 2000.

24 In this case also, there is the concluding qualification:

“... except as otherwise permitted by the Corporations Law.”

The concluding qualification

25 Each of the orders is expressed to prohibit particular conduct “except as otherwise permitted by the Corporations Law”. As the statement of charge shows (see paragraphs 1, 4 and 7), ASIC accepts that, in respect of conduct engaged in after the Corporations Law was generally superseded by the Corporations Act 2001 (Cth) on 15 July 2001, the qualification should be understood as if it referred to that Act.

26 ASIC has therefore approached the matter on the footing that, if conduct engaged in since 15 July 2001 is within the prohibiting words of one of the orders but was “permitted by” the Corporations Act as in force at the time the conduct was engaged in, then there was no contravention of the order.

27 The defendant accepted that approach to the effect and construction of the concluding qualification.

28 The consequence, in my judgment, is that if particular conduct engaged in since 15 July 2001 is caught by the prohibiting words of the order (disregarding the concluding qualification) but is not prohibited by a provision of the Corporations Act for the time being in force, there is no breach of the order by reason of the conduct.

29 I say this because it seems to me that the words “permitted by” must, in the context, mean “not prohibited by”, as distinct from “positively and expressly allowed by”.

30 ASIC, on my understanding, accepts this construction; and I do not understand it to be disputed by the defendant.

31 But even when approached in this way, the concluding qualification does not have any ameliorating effect from the defendant’s perspective.

32 Conduct caught by Order 8 was, on 13 June 2008, prohibited by ss 911A and 911B of the Corporations Act (interpreted in the light of the interpretation provisions in Part 7.1), unless engaged in by a person holding an Australian financial services licence covering the particular form of conduct. The position as at 13 June 2008 in relation to conduct caught by Order 12 is the same. The defendant held no licence at any relevant time.

33 In relation to conduct caught by Order 10, the relevant provision of the Corporations Act at 13 June 2008 was s 726:

“A person must not offer securities of a body that has not been formed or does not exist if the offer would need disclosure to investors under Part 6D.2 if the body did exist. This is so even if it is proposed to form or incorporate the body.”

34 If it is found that the defendant’s conduct contravened Order 10, it must also be found that it was not “permitted by” s 726.

35 The concluding qualification, construed in the way I have described, does not, in the case of any of the three orders, modify or detract from its central prohibition.

The content of the letter

36 Several features of the letter must be noted.

37 First, the defendant informs the reader that a particular “ASX listed company” has been identified by him. He does not state the company’s name but states features that would be considered favourable and desirable by someone considering equity investment in the company – in particular, that the company’s business is generating high profits and will benefit from “any further tightening of the credit markets” (a possibility that was no doubt considered real as at June 2008 when the letter was written). He also refers to the company’s being “an Australian brand name in its industry with high public recognition”, thus implying a likelihood of profitable operation to sustain dividends.

38 The reference to a P/E ratio of 4 times based on “after tax earnings guidance for 2008” suggests that an investment of $4 will produce an interest in earnings for that year of $1. That is said to be an attractive price – one so attractive that the defendant has not seen any other “thrown up” by “the credit crisis” to equal it.

39 The defendant then says that he has “today” acquired “an interest in” 400,000 shares in the “subject company”, still unnamed. He makes it clear that he has been willing to commit part of his own financial resources for this purpose, indicating also that he has increased them in order to do so: “I have maxed out my available resources”. He goes on to refer to the availability to him of a loan facility that will enable him to acquire further shares in the company. He does not actually say that he intends to acquire more shares.

40 Then comes a statement of the defendant’s intention concerning “exiting” his investment. He says that he intends to exit once the share price is six times the earnings per share. That “scenario” is then translated more widely to the circumstances of “the investor”, rather than the defendant personally (the first person “I” and “my” slips into the third person “the investor”). The “scenario” of exiting once the share price is six times earnings per share is represented as one which “would imply” a $12,000 “after the tax franked dividend return” to “the investor” upon a $10,000 investment, “plus return of capital/loan”.

41 Exactly how that extrapolation is produced by the described “scenario” is neither explained nor, upon analysis, clear. What is clear, however, is the opinion or prediction that someone making a “$10,000 investment” will, over an unstated period, achieve return of the “capital/loan” (which must be the invested $10,000) as well as an “after tax franked dividend” of $12,000. While that would not be an attractive proposition over 50 years, it would be over, say, one or two years. Despite the absence of reference to a period, the clearly implied message is one of attractiveness.

42 The final paragraph of the letter poses a question of the person or persons to whom the letter is addressed. The question is whether the person is (or persons are) interested in a particular form of commercial transaction – specifically, becoming “a lender or share investor in a new company vehicle”. It is made clear that the “new company vehicle” is not the company the attributes of which are discussed earlier in the letter. Rather, the “new company vehicle” will itself acquire shares in that other company.

43 The reference to the “new company vehicle” may be a reference to a company not yet formed and in existence but proposed to be formed or a reference to a company already formed and in existence. The message is equivocal on that point.

Surrounding circumstances

44 The defendant gave evidence of the circumstances in which he wrote the letter.

45 He had in fact identified a particular ASX listed company. He named it in his evidence. The information he gave was information about that particular company. He conducted research to obtain that and other information about the company.

46 The defendant also made it clear that no “new company vehicle” was in existence when the letter was prepared and sent. He envisaged that each superannuation fund that sought to pursue the investment opportunity (if any did) would arrange the formation of a new company and then fund that company by either share subscription or loan to enable it to invest in shares of the ASX listed company. The defendant would be the sole director of each such new company and there would be an agreement between him and the superannuation fund to split profits derived from the investment, with his share coming to him as a director’s fee.

Analysis of the content of the letter

47 Each letter solicited an expression of interest on the part of the addressee or addressees. It did so at two levels. First, it obviously sought to elicit an expression of interest in becoming an indirect investor in shares of the unnamed ASX listed company. Second and in an immediate sense, it sought an expression of interest in providing money by way of loan to, or as subscription moneys for shares in, the “new company vehicle” proposed as the direct investor in shares in the unnamed ASX listed company.

48 The letter did not put the recipient into possession of information (or otherwise into a position) such that the recipient might take action independently of the defendant to make an investment in the ASX listed company. There was no danger that any recipient, acting on the strength of the letter only, would cause money to be laid out in any such investment. The relevant company was not identified. And that, of course, was part of the defendant’s plan: he did not want to put people into a position where they could themselves invest directly in that company and by-pass him.

49 The only thing that a recipient could do in response to the letter was to contact the defendant as envisaged by the last paragraph, that is, with a view to the possibility of lending money to, or investing in shares in, the “new company vehicle” and by that means acquiring an indirect interest in such shares in the unnamed ASX listed company as the “new company vehicle” might in due course acquire.

50 But, of course, the letter did give information and make comment about the unnamed ASX listed company and shares in it – information and comment calculated to portray investment in those shares (directly or indirectly) as a financially attractive proposition.

51 It is, to my mind, clear that each letter contained an analysis and a report about shares in the unnamed ASX listed company. There was analysis to the extent of reference to the P/E ratio and attributes of the company’s business that might be expected to be reflected in profit performance and share price. There was a report about the matters that go to make up the analysis.

52 It is also clear that each letter advised the recipient about shares in the unnamed ASX listed company. It did so by stating, on the basis of the analysis and report, conclusions about the attractiveness of investment in those shares and suggesting that the recipient take a particular course with a view to obtaining, albeit indirectly, an interest in such shares.

53 Another feature of the letter is that it was calculated to convey an inducement, that is, “persuasion aimed at producing some willing action, as opposed to compulsion by force or fear of force to produce some unwilling action”: R v Bodsworth (1968) 87 WN (NSW) (Pt 1) 290 at 298. The defendant attempted to induce the addressee to “partner with” the defendant “as lender or share investor in a new company vehicle which would acquire additional shares in the target company”. The attempt was thus aimed at causing the addressee to enter into some form of partnership or association of a consensual and contractual nature, based on the “new company vehicle” structure, the object of which was to acquire shares in the unnamed ASX listed company. The formation of the partnership or association would, obviously enough, involve the making of an agreement; and the agreement would be one “with respect to” (in the broad sense recognised by Latham CJ in Bank of New South Wales v The Commonwealth [1948] HCA 7; (1948) 76 CLR 1 at 186) “acquiring” shares in the ASX listed company. I say this because the envisaged agreement was one under which the defendant and the person solicited would cooperate in forming and funding the “new company vehicle” for the specific purpose of its acquiring for their financial benefit shares in the ASX listed company.

54 The attempted inducement operated at a second level as well. The attempt was also aimed at causing the addressee to enter into a partnership or association agreement the object of which was the acquisition of either shares in or a repayment obligation of the “new corporate vehicle”. But, as I have said, the new corporate vehicle, unlike the unnamed ASX listed company, did not exist when the letter was sent.

55 One thing that, in my view, the letter did not do was to convey or communicate either an “offer” of shares in the new company vehicle “for subscription” or an “invitation to subscribe for” such shares. There was no offer because the solicitation was not on terms making possible a simple “I accept” response. I am of the opinion that that meaning must be given to “offer” in a context where it is used in conjunction with “invitation” and that a wider meaning that might comprehend “invitation” as well as an offer in the strict sense is not then warranted: compare Attorney General v The Mutual Home Loans Fund of Australia Ltd [1971] 2 NSWLR 162, Australian Softwood Forests Pty Ltd v Attorney General [1981] HCA 49; (1981) 148 CLR 121. There was no “invitation to subscribe” because the basis of subscription was not stated and there was no indication of the terms on which offers to subscribe would be entertained. The invitation was, at most, an invitation to engage in discussion with a view to the possibility of negotiating a subscription contract.

56 The observation just made about the new corporate vehicle is relevant to Order 10. Another point to be made in that connection is that, for reasons stated at paragraph [15] above, Orders 8 and 12 did not extend to relevant conduct in relation to shares in (or other securities of) the non-existent new corporate vehicle.

57 Finally, it is to be noted that the content of the letter was communicated to 1,650 separate addressees (with co-trustees being regarded as a single addressee for this purpose) and that this was done by the defendant with a view to the obtaining by him of financial advantage (I do not mean to suggest by this that advantage to him was intended to be at the expense of any responding addressee: according to his plan, both were intended to benefit financially). He made it plain that his objective was to make money out of becoming a co-venturer with persons responding to his letter.

Assessment of the defendant’s conduct – “undertaking” a “business”

58 In view of what is said at paragraphs [55] and [56] above, there is no need to pursue the question whether the defendant contravened Order 10. That question must be answered favourably to him.

59 The defendant submits that he did not contravene Order 8 or Order 12. He says, in the first place, that his actions did not entail his “undertaking” any “business”, that being something that is central to both those orders. He argues that there is a difference between “undertaking” a business and “carrying on” a business. At one level, there is no difference, in that “undertaking”, when used in relation to “business”, means the same as “pursuing” or “engaging in” and is synonymous with “carrying on”. Alternatively (or in addition), “undertaking” may be synonymous with “embarking upon”, in the sense of “commencing to carry on”.

60 In the end, I do not consider it necessary to choose between these meanings of “undertaking”. The fact is that the defendant was not, at the time, already engaged in any business involving activities of the kind he proposed for the consideration of the persons to whom the letters were addressed. He obviously wished, if he could, to negotiate and give effect to as many “partnering” arrangements as possible with persons to whom the letter was sent. His aim and desire were to do so with a view to his obtaining the anticipated financial benefits to which I have referred. As Latham CJ said in Western Gold Mines NL v Commissioner of Taxation (WA) [1938] HCA 5; (1938) 59 CLR 729 at 733:

“Every business must begin with a single transaction.”

61 Indeed, one could go further and say that every business must begin with preparatory steps antecedent to but calculated to produce its first transaction. A person who leases and stocks a shop and opens its doors to the public is “undertaking” a retail business even before the first potential customer enters and the first sale is made. In the same way, a person who attempts, through widespread solicitation, to interest persons in entering into commercial transactions with the person, who is willing to treat and, if possible, transact with such, if any, of the solicited persons as express interest, who approaches the solicitation in a methodical and systematic fashion and who acts in that way with a view to financial gain must be regarded as thereby “undertaking” a course of activity amounting to “business” in the sense to which Street CJ, Roper CJ in Eq and Herron J referred in Hyde v Sullivan [1956] SR (NSW) 113 at 119:

“Speaking generally, the phrase ‘to carry on business’ means to conduct some form of commercial enterprise, systematically and regularly, with a view to profit, and implicit in this idea are the features of continuity and system.”

62 The defendant’s action in despatching the 1,650 letters thus entailed his “undertaking” a “business”. The question is whether the business was of a kind comprehended by Order 8 or Order 12.

63 Order 8 speaks of the business “of” either “advising” (as described) or “publishing” (as described) or the business “of” both “advising” (as described) and “publishing” (as described). Order 12 speaks of the business “of” what is, according to the s 9 definition of “deal”, “dealing in securities”. This raises a question about how one identifies the content of a business in the sense of deciding what it is a business “of”.

64 It was held in Chappius v Filo (1990) 19 NSWLR 490 that the business “of” a pharmacist might include the retailing of cosmetics, toiletries and other non-pharmaceutical products commonly sold by dispensing chemists in the course of business. Similarly, in Dungate v Lee [1969] 1 Ch 545, it was accepted that the business “of” a bookmaker might entail activities other than those undertaken by bookmakers but not by other persons. There was in both cases an acceptance of the reality stated by Megarry J in Royal Bank of Canada v Inland Revenue Commissioners [1972] Ch 665 at 679 that “[a] statement of the essentials of a business does not seem to me, without more, to be exhaustive of all that is ordinary in that business.”

65 I am of the opinion that embarking upon a business that has as one of its recognisable activities the publishing of analyses or reports about securities or the giving of advice about securities is conduct prohibited by Order 8; while embarking upon a business that has as one of its recognisable activities attempting to induce persons to make agreements with respect to acquiring securities (the attempts at inducement being within the s 9 definition of “deal”, as already noted) is conduct prohibited by Order 12. In each case, the recognisable activity in question forms part of the business so as to make the business one “of” engaging in the conduct concerned, even if that is by no means exhaustive of all that makes up or is ordinary in the business.

66 I am satisfied that, by sending the 1,650 letters, the defendant undertook a business of (a) publishing analyses or reports about shares in the unnamed ASX listed company; and (b) giving advice about shares in the unnamed ASX listed company; and (c) attempting to induce persons to make agreements with respect to acquiring shares in the unnamed ASX listed company, being “securities” as referred to at paragraph [15] above.

67 Because of elements (a) and (b), the defendant’s conduct in sending the letters was conduct prohibited by Order 8; and because of element (c), it was conduct prohibited by Order 12 – subject, in each case, to one matter that remains for consideration.

Assessment of the defendant’s conduct - the listed company was not named

68 Submissions made on behalf of the defendant emphasised that the particular ASX listed company discussed in the 1,650 letters was not identified. There was accordingly no possibility that a recipient might, relying on letter, actually make an investment in shares of that company. Recipients were shielded from that exposure. What they were exposed to – and encouraged to seek – was contact with the defendant with a view to the possibility of reaching agreement with him regarding a partnering arrangement.

69 The fact that the defendant did not identify the particular ASX listed company referred to in the 1,650 letters does not mean that the conduct involved in the sending of the letters did not relate to shares in that company (and therefore “securities”). The conduct related to (and was engaged in with respect to) securities of a particular and existing company. That the company’s name was, as it were, left blank does not mean that the conduct was dissociated from or did not concern those securities. It means only that recipients of the letter were not given the means of identifying the particular and existing company to which reference was made.

Conclusion

70 By sending by post the approximately 1,650 letters dated 13 June 2008 each of which was addressed to the trustee or trustees of a self-managed superannuation fund, the defendant contravened the prohibition imposed by Order 8 and the prohibition imposed by Order 12.

71 In accordance with the third of the principles stated by Finn J in Metcash Trading Ltd v Bunn (No 5) (above), it is unnecessary, on the question whether contempt was committed, to consider whether the defendant understood the true meaning of the terms of Order 8 and Order 12 or knew that his conduct constituted a breach of the order.

72 ASIC has made out the charges in paragraphs 2 and 5 of the amended statement of charge. It is determined that the defendant is guilty of contempt of court accordingly. The remaining charges in the amended statement of charge are not made out.

73 There will be a separate hearing on the question of penalty.

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LAST UPDATED:
25 February 2009