ASIC v Matthews

CATCHWORDS : PROCEDURE - contempt of court - considerations relevant to punishment discussed

Crimes (Sentencing Procedure) Act 1999, ss 4, 5(1), 8, 9, 12, 14 LEGISLATION CITED : Federal Courts (State Jurisdiction) Act 1999 Supreme Court Rules 1970, Part 55 rule 13

Australasian Meat Industry Employees' Union v Mudginberri Station Pty Ltd [1986] HCA 46; (1986) 161 CLR 98 Australian Securities and Investments Commission v Matthews [1999] FCA 803; (1999) 32 ACSR 404 Australian Securities and Investments Commission v Matthews [2000] NSWSC 201 Australian Securities and Investments Commission v Matthews [2000] NSWSC 392 Australian Securities and Investments Commission v Matthews [2001] NSWSC 735; (2001) 39 ACSR 110 CASES CITED : Australian Securities and Investments Commission v Matthews [2009] NSWSC 77 Australian Securities and Investments Commission v Michalik [2004] NSWSC 1259; (2004) ACSR 115 Crane Distribution Ltd v Van Schellebeek [2009] NSWSC 263 Metcash Trading Ltd v Bunn (No 6) [2009] FCA 266 Principal Registrar Supreme Court of New South Wales v Jando (2001) 53 NSWLR 527 Registrar Court of Appeal v Maniam (No 2) (1992) 26 NSWLR 309

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

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

SOLICITORS : Conrad Gray - Plaintiff Defendant in person

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

1635/2000 AUSTRALIAN SECURITIES AND INVESTMENTS COMMISSION v STEPHEN LEWIS MATTHEWS JUDGMENT 1 After a hearing on 8 and 9 December 2008, the defendant was, on 25 February 2009, found guilty on two of five charges of contempt of court brought against him by the plaintiff, Australian Securities and Investments Commission: see Australian Securities and Investments Commission v Matthews [2009] NSWSC 77. 2 A hearing on penalty took place on 19 March 2009. On that occasion, counsel for the defendant read an affidavit sworn by the defendant on 9 March 2009 and tendered a written statement of the defendant to which it will be necessary to refer in due course.

3 The evidence just mentioned, together with evidence adduced on 8 and 9 December 2008 and further oral evidence of the defendant on 19 March 2009, is before the court for the purpose of deciding the question of punishment.

The history of the proceedings and earlier contempts 4 The orders disobeyed by the defendant were made by this court on 4 October 2000 in a proceeding which was originally commenced by the plaintiff against the defendant in the Federal Court of Australia. 5 Interim orders enjoining certain conduct by the defendant were made by the Federal Court on 19 February 1999. Those orders were made by consent. They prohibited certain activities concerning advice about securities and publication of securities reports. 6 Shortly afterwards, the plaintiff alleged contravention of those orders by the defendant between 8 and 15 March 1999. The defendant admitted the contraventions and that he was guilty of contempt of court accordingly. He was sentenced by the Federal Court of Australia (Sackville J) to be imprisoned for two months but it was ordered that the warrant for committal not be executed provided that the defendant refrained for 12 months from contravening any of the orders of 19 February 1999: see Australian Securities and Investments Commission v Matthews [1999] FCA 803; (1999) 32 ACSR 404. 7 By operation of the Federal Courts (State Jurisdiction) Act 1999, the interim orders of 19 February 1999 later became orders of this court and the proceedings continued in this court. 8 The plaintiff thereafter laid further charges of contempt by reason of further alleged breaches of the interim orders of 19 February 1999. Those charges were heard by Windeyer J who, on 23 March 2000, found the defendant guilty of contempt of court: Australian Securities and Investments Commission v Matthews [2000] NSWSC 201. On 4 May 2000, his Honour ordered that the defendant be imprisoned for a fixed term of three months and that a warrant for committal to prison issue and be executed forthwith: Australian Securities and Investments Commission v Matthews [2000] NSWSC 392. The defendant was imprisoned and served his sentence. 9 The orders the subject of the application heard by me are final orders made by this court in the transferred proceedings on 4 October 2000. The orders were made by consent. The terms of them appear at paragraph 3 of the judgment of 25 February 2009. They too forbade various forms of conduct with respect to securities. 10 On 11 May 2001, the plaintiff brought further charges of contempt against the defendant. It alleged various contraventions of the final orders of 4 October 2000. On 30 August 2001, Foster AJ found the defendant guilty of contempt of court and sentenced him to imprisonment for 12 months, but with the warrant for committal to remain unexecuted provided that the defendant gave security in the sum of $5,000 to be of good behaviour for a period of two years: see Australian Securities and Investments Commission v Matthews [2001] NSWSC 735; (2001) 39 ACSR 110. The security was provided. 11 This is thus the fourth occasion on which the defendant has been found guilty of contempt of court by reason of contravention of court orders regulating his behaviour in matters concerning securities. On each of the earlier occasions, he has been sentenced to a term of imprisonment. In one case, the sentence was served. In each of the other two (the first and the third) it was suspended on condition that the defendant be of good behaviour.

The factual context 12 The contempt with which I am now concerned was committed when, on or about 13 June 2008, the defendant sent to the trustees of each of approximately 1,650 self-managed superannuation funds the letter bearing that date set out at paragraph [1] of the 25 February 2009 judgment. By sending the letter, the defendant undertook a business of (a) publishing analyses or reports about shares in an unnamed company listed on Australian Securities Exchange; and (b) giving advice about shares in that company; and (c) attempting to induce persons to make agreements with respect to acquiring shares in that company. He thereby contravened the orders of 4 October 2000 in two respects. 13 The defendant gave evidence that, in composing the letter of 13 June 2008, he had in mind the orders of 4 October 2000 and provisions of the Corporations Act 2001 (Cth) that he thought relevant. His affidavit of 28 November 2008 describes a process of analysis that he undertook in relation to a number of issues central to the question of compliance with the orders and relevant statutory provisions. His conclusion was that pursuit of the course he proposed to follow would not contravene the orders or the statutory provisions. In reaching that conclusion, he relied on his own interpretations and drew upon statements made in a letter from the plaintiff to him dated 28 August 2006. 14 The letter of 28 August 2006 was, according to its terms, written by the plaintiff to the defendant after a company called Boley Holdings Pty Ltd sent a letter dated 8 June 2006 to the trustees of selected self managed superannuation funds. Boley Holdings was a company owned and activated by the defendant. The letter of 28 August 2006 from the plaintiff concluded by inviting Boley Holdings to give a written undertaking. The letter also expressed certain views about the applicability of provisions of the Corporations Act to the conduct involved in despatch of the letters by Boley Holdings. According to his affidavit, the defendant drew certain conclusions about his conduct now under consideration from, first, the fact that the plaintiff did not in its 2006 letter level certain criticisms at the conduct the subject of that letter and, second, the fact that a particular statement made in the plaintiff's 2006 letter was not in absolute or unequivocal terms ("… the exemption … may not apply" [emphasis added]). 15 The defendant did not seek legal advice before sending out the 1,650 letters dated 13 June 2008. He gave evidence of having consulted legal resources available on the Internet. These included the earlier judgments of Windeyer J and Foster AJ but were otherwise not identified in the defendant's evidence. 16 Following despatch by the defendant of the 1,650 letters, the plaintiff received complaints from seven persons to whom the letters were sent. 17 The defendant gave oral evidence that he received "about half a dozen" telephone calls in response to the letters. In a subsequent affidavit (9 March 2009), he said that there had been three responses. One person arranged to meet with the defendant on 26 June 2008 but cancelled the meeting before that date. In the result, therefore, the defendant did not transact or deal with anyone as a result of the letters. Earlier relevant conduct 18 I have referred to the three prior occasions on which the defendant has been adjudged guilty of contempt of court. I should also refer to earlier proceedings in the Federal Court of Australia brought by the plaintiff against the defendant and a company called Webnet Advertising Services. On 12 June 1998, orders were made in those proceedings requiring the defendant to remove certain material from his website and restraining him from receiving money by way of subscription or otherwise from AMP shareholders in relation to AMP shares. Those proceedings concluded after the defendant had, at the plaintiff's invitation, given certain undertakings to the Federal Court. 19 On 2 December 1998, the plaintiff wrote to the defendant about a complaint it had received "regarding an invitation that has been issued by you on The Chimes web site on the Internet offering options over unissued shares in a company to be incorporated". The plaintiff asked the defendant to give certain undertakings. He did so on 3 December 1998. The defendant's circumstances and attitude 20 The defendant is 55 years old. He holds a university degree and worked as a stockbroker in the 1980s. He previously held a licence under the Corporations Law but has not been licensed since 1994. He describes himself in his affidavit as a management consultant. He is employed at a salary of $37,500 per annum (reduced from $75,000 per annum on about 13 February 2009). His assets are modest and are exceeded by his liabilities. 21 The defendant has a wife and three dependent children living at home. His wife is employed. The household income is just enough to cover the household expenses. 22 The written statement tendered by the defendant on 19 March 2009 is in these terms: "I regret that I have involved myself in an activity which has been found by the Court to offend Orders of the Court. That was not my intention. On the contrary I was aware of the Court's orders at the time that I involved myself in the impugned activity and considered that I was not offending those Orders when I involved myself in that activity. I am still of the view that I was not involved in business and propose to take that issue on appeal. If I am ultimately found to be wrong in my view, I can only apologise in advance for the consequential inconvenience to the Court and the Plaintiff and members of the public arising on my impugned activity." Approach to the question of punishment 23 In addressing the question of the appropriate punishment in this case, I begin with what Gibbs CJ, Mason J, Wilson J and Deane J, in Australasian Meat Industry Employees' Union v Mudginberri Station Pty Ltd [1986] HCA 46; (1986) 161 CLR 98, described as "the underlying rationale of every exercise of the contempt power", that is, "to uphold and protect the effective administration of justice". Their Honours added, at 107: "Although the primary purpose in committing a defendant who disobeys an injunction is to enforce the injunction for the benefit of the plaintiff, another purpose is to protect the effective administration of justice by demonstrating that the court's orders will be enforced. As the authors of Borrie and Lowe's Law of Contempt , 2nd ed (1983) say, at 3: 'If a court lacked the means to enforce its orders, if its orders could be disobeyed with impunity, not only would individual litigants suffer, the whole administration of justice would be brought into disrepute.'" 24 It may be added that, in this case, the orders in question were made not for the protection or vindication of some private right of the plaintiff but to protect the public. As is discussed in the judgment of 25 February 2009, the orders enjoined various forms of behaviour prohibited by provisions of the Corporations Law operative at the time the orders were made. The effect of the orders was to impose specifically upon the defendant prohibitions corresponding with certain prohibitions imposed generally by statutory provisions. The prohibitions were of an investor protection kind. The two charges found proved concerned conduct made unlawful by Corporations Law provisions when engaged in by a person not exempted and not appropriately licensed under the legislation. The defendant was, at all material times, such a person. 25 The orders contravened by the defendant were, in this way, orders directed towards the protection of the public. That adds to the question of penalty a dimension that is unusual, in that, in most cases, injunctions and similar orders are protective of some private interest of a litigant. 26 The factors generally to be taken into account in addressing the question of the punishment to be imposed for contempt of court by disobeying an order of the court have been addressed in a number of cases. Mr Stack of counsel, who appeared for the plaintiff, referred to the catalogue of matters appearing at paragraph [29] of the judgment of Palmer J in Australian Securities and Investments Commission v Michalik [2004] NSWSC 1259; (2004) ACSR 115 recently approved by Einstein J in Crane Distribution Ltd v Van Schellebeek [2009] NSWSC 263. The matter also received attention recently in the judgment of Finn J in Metcash Trading Ltd v Bunn (No 6) [2009] FCA 266. 27 Drawing on those sources and having regard to the purpose of the orders of 4 October 2000, I am of the opinion that the following are the relevant considerations in this case: 1. The seriousness of the contempt proved. 2. The contemnor's culpability. 3. The reason or motive for the contempt. 4. Whether the contemnor has received, or sought to receive, a benefit or gain from the contempt. 5. Whether there has been any expression of genuine contrition by the contemnor. 6. The character and antecedents of the contemnor. 7. The contemnor's personal circumstances. 8. The need for deterrence of the contemnor and others of like mind from similar disobedience. 9. The need for denunciation of contemptuous conduct. 28 I shall address these matters in turn. Factor 1 29 The contempt was serious. The orders contravened were directed towards the protection of the public. The defendant, by his conduct, subjected 1,650 persons (counting co-trustees as one person) to communication from which the orders (and, for that matter, the law) intend them to be protected. It is not to the point that few responded and that none actually sought to pursue the opportunity outlined. Nor is it to the point that no astute person was likely to respond. The orders, like the statutory provision on which they are based, are designed to protect persons who are not able to protect themselves. The policy of the law and the orders is to preclude communication. That is the protection that the plaintiff penetrated. Factor 2 30 The defendant acted knowingly and deliberately. He had, on no less than five earlier occasions, either given undertakings not to engage in certain conduct or been found to have acted in contravention of court orders forbidding certain conduct. In every such case (as in this case), the defendant's activities were the subject of proscriptions imposed by statute or by orders reflecting statutory proscriptions. 31 In the present case (as in the earlier cases), the context was one in which somewhat difficult legal concepts are at work. The defendant says that he was conscious of the need to obey the orders of 4 October 2000 and the like statutory prohibitions. Yet he was content to work according to his own lay appreciation of the legal issues, aided by unspecified information gleaned from the Internet and inferences he drew in part from silence and in part from a conclusion expressed equivocally in a letter from the plaintiff concerning earlier conduct. 32 The defendant did not seek legal advice. He did not seek consultation with the plaintiff. He simply acted on his own lay view of the legal issues. And he did so in circumstances where his several earlier experiences should have told him, first, that there was a need for him to be sure of his legal ground and, second, that his own assessments of the effect of legal proscriptions were anything but reliable. 33 The defendant may therefore be seen to have acted in a way that did not entail due care and attention to the question whether the orders would be contravened by the activity he undertook. Factors 3 and 4 34 The defendant's motive was made clear on the face of the letter of 13 June 2008. He had in view the possibility - indeed, the hope - that persons responding to the letter would agree to "partner" with him in his pursuit of an investment opportunity the financial attractiveness of which, as perceived by the defendant himself, was referred to in the letter. 35 The defendant was careful not to identify the particular ASX listed company in the letter he sent. To do so would have enabled recipients to make investments of their own, without working through him. That would not have suited him at all. He wanted to ensure that he participated financially in any investment undertaken. 36 His motive was personal financial gain. Factor 5 37 The statement made by the defendant to the court is set out at paragraph [22] above. He is hampered in his ability to express contrition by an apparent belief that he is not guilty and his stated intention to appeal. 38 The defendant does not express contrition. His apology is, in terms, operative only if "I am ultimately found to be wrong in my view". He thus says that, if and when he is unsuccessful on appeal, he will be sorry for the inconvenience he has caused to the court, the plaintiff and members of the public; but in the meantime he is not sorry at all. Factor 6 39 The defendant has been adjudged guilty of contempt of court on three previous occasions. I have referred to the penalties imposed. 40 By reason of those matters and the sentences of imprisonment (two suspended and one served), the defendant cannot be regarded as a person of good character.

Factor 7 41 The defendant has a working wife and dependent children. He is employed. His income is not great and his means are slender. Factor 8 42 The defendant has not been deterred by the sentences passed on him on the three previous occasions. In particular, the approach deliberately taken by Foster AJ in 2001 in the hope of engendering more compliant and responsible behaviour in the defendant has simply not worked. His Honour said, at paragraph [51]: "In my opinion, I should seek, in the public interest, to find, in the present case, the most effective remedy. Although Mr Matthews did not respond sensibly to the suspended sentence imposed by Sackville J, it must be recognised that the sentence was, then, a relatively short one. I have formed the view that Mr Matthews is more likely to curb his foolhardy attitude to the court's orders, if he is under the threat of a substantial suspended sentence, to be served should he offend again." 43 It is true, as counsel for the defendant pointed out, that the defendant did not breach the orders again during the subsistence of the security for good behaviour for two years that was the condition of the suspension of the sentence of imprisonment for 12 months imposed by Foster AJ. The deterrence has not, however, been of lasting effect. 44 This indicates a need for stronger measures on this occasion. Factor 9 45 Particularly in light of the history just mentioned, there is a pronounced need for denunciation of this contemptuous conduct. The form of punishment 46 Part 55 rule 13 of the Supreme Court Rules 1970 is as follows: "(1) Where the contemnor is not a corporation, the Court may punish contempt by committal to a correctional centre or fine or both. cf HCR, O 56, r 9.

(2) Where the contemnor is a corporation, the Court may punish contempt by sequestration or fine or both.

(3) The Court may make an order for punishment on terms, including a suspension of punishment or a suspension of punishment in case the contemnor gives security in such manner and in such sum as the Court may approve for good behaviour and performs the terms of the security." 47 In Registrar Court of Appeal v Maniam (No 2) (1992) 26 NSWLR 309, Kirby P said with the concurrence of Mahoney JA and Hope JA (at 314): "A conviction of contempt of court is a conviction of an offence, criminal in nature. Punishment of the convicted contemnor must therefore take into account the considerations normally applicable to the punishment of crime and apt to uphold the purpose of this jurisdiction, viz, the undisturbed and orderly administration of justice in the courts according to law. Thus, in determining the punishment which is apt to the circumstances which have led to a conviction of contempt, it is appropriate to bear in mind the purposes of punishing the contemnor; deterring the contemnor and others in the future from committing like contempts; and denouncing the conduct concerned in an approximately emphatic way: see Director of Public Prosecutions v John Fairfax & Sons Ltd (1987) 8 NSWLR 732 at 741. In this jurisdiction, contempt is a common law offence for which there is therefore no maximum penalty in this Court: R v Dunbabin; Ex parte Williams (1935) 53 CLR 434 at 442. Any limits which are imposed upon the Court's powers derive from the purposes stated above and the limitations expressed in the Tenth Article of the Bill of Rights 1688 which restrains the imposition of cruel or unusual punishments or "excessive fines": see Smith v The Queen (1991) 25 NSWLR 1, noted (1991) 65 ALJ 695." 48 In Principal Registrar Supreme Court of New South Wales v Jando (2001) 53 NSWLR 527, it was held by Studdert J that, in the light of the nature of contempt thus described by Kirby P, s 4 of the Crimes (Sentencing Procedure) Act 1999, which expressly contemplates the application of that Act to common law offences, causes it to apply to contempts of court such as the present. That brings into play s 5(1) of that Act: "A court must not sentence an offender to imprisonment unless it is satisfied, having considered all possible alternatives, that no penalty other than imprisonment is appropriate." 49 Alternatives to a sentence of imprisonment for which that Act makes provision are the making of a community service order (s 8), the making of an order that the offender enter into a good behaviour bond (s 9) and the imposition of a fine as an additional punishment (s 14). A sentence of imprisonment may be suspended (s 12). Under Part 55 rule 13 of the Supreme Court Rules (above), a fine may be imposed. Discussion and decision 50 Even if a fine were somehow an appropriate penalty, it would have to be substantial and the defendant's lack of means indicates that there would be no point in imposing a penalty of that kind. A fine is, in any event, not an appropriate penalty. 51 A good behaviour bond would replicate the punishment imposed in two of the three earlier cases in which the defendant has been adjudged guilty of contempt of court. That form of punishment did not deter him from the activities that gave rise to the charges on which he is now to be sentenced. There is no reason to think that it would, on this occasion, have any greater deterrent effect, so far as the defendant's future conduct is concerned. Nor is there any reason to think that it would sufficiently register the denunciation that is warranted, particularly as this is the fourth occasion on which the defendant has been dealt with for contempt of court in generally similar circumstances. 52 It was submitted on behalf of the defendant that a community service order is the appropriate punishment in this case. I disagree. That would involve little more in the way of curtailment of freedom than a good behaviour bond. Again, the deterrent effect and message of denunciation would be insufficient in view of the history of offending. 53 The defendant must be sentenced to a term of imprisonment. His previous incarceration was for a term of three months. Neither that nor the two suspended sentences caused him to modify his conduct. He should now be imprisoned for a fixed term of six months. 54 The declarations and orders of the court are as follows:

Declare that the defendant, Stephen Lewis Matthews, is, by his conduct in posting identical letters dated 13 June 2008 to approximately 1,650 persons who were trustees of self managed superannuation funds, guilty of contempt of this court as charged in paragraph 2 of the amended statement of charge filed herein on 8 December 2008.

Declare that the defendant, Stephen Lewis Matthews, is, by his conduct in posting identical letters dated 13 June 2008 to approximately 1,650 persons who were trustees of self managed superannuation funds, guilty of contempt of this court as charged in paragraph 5 of the amended statement of charge filed herein on 8 December 2008.

Order that the defendant, Stephen Lewis Matthews, be imprisoned for a fixed term of six (6) months commencing on 21 April 2009 and ending on 20 October 2009.

Order that a warrant for the committal of the defendant, Stephen Lewis Matthews, to prison for the said fixed term do issue.

Order that the warrant for the committal of the defendant, Stephen Lewis Matthews, to prison be executed forthwith.

Order that the defendant pay the plaintiff's costs of the contempt of court proceedings determined by me. **********

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