Corporations Act 2001 (Cth) ss 674, 676, 677, 1317E, 1317G

Trade Practices Act 1974 (Cth) s 76

Australian Stock Exchange Listing Rules rr 3.1, 15.7

NW Frozen Foods Pty Ltd v Australian Competition and Consumer Commission [1996] FCA 1134; (1996) 71 FCR 285 discussed

Trade Practices Commission v Allied Mills Industries Pty Ltd [1981] FCA 142; (1981) 60 FLR 38 cited

Australian Competition and Consumer Commission v Real Estate Institute of Western Australia Inc [1999] FCA 18; (1999) 161 ALR 79 cited

Australian Competition and Consumer Commission v Roche Vitamins Australia Pty Ltd (2001) ATPR s41-809 cited

Australian Competition and Consumer Commission v ABB Transmission and Distribution Ltd (2001) ATPR s41-815 cited

Australian Competition and Consumer Commission v Colgate-Palmolive Pty Ltd (2002) ATPR s41-880 discussed

Australian Competition and Consumer Commission v The Tasmanian Salmonid Growers Association Ltd [2003] FCA 788 discussed

AUSTRALIAN SECURITIES AND INVESTMENTS COMMISSION v SOUTHCORP LIMITED

IN THE MATTER OF SOUTHCORP LIMITED (ACN 007 722 643)

1. At or about 4.29 pm on 18 April 2002, the defendant by its Executive General Manager of Corporate Affairs, Glen Cunningham, sent an email (`the 18 April Email') to the persons named in the Schedule (`the Analysts').

2. The 18 April Email contained the following information (`the Information'):

(a) that all of the defendant's 2000 vintage super premium wines were expected to be sold in the 2003 financial year; and

(b) that the gross profit impact of the poor 2000 vintage on the 2003 financial year compared to the 2002 financial year was expected to be of the order of $30 million.

3. The defendant failed to notify the Australian Stock Exchange Limited (`ASX'), being the market operator of a listing market in which the defendant was a listed disclosing entity, of the Information before it was sent to the Analysts.

4. By sending the 18 April Email, the defendant communicated the Information selectively to the Analysts, without first disclosing it to the entire market by notifying it to the ASX and thereby contravened section 674(2) of the Corporations Act 2001 (Cth) (`the Act').

1. Pursuant to section 1317G of the Act, the defendant pay to the Commonwealth a pecuniary penalty in the sum of $100,000.

2. The defendant pay the plaintiff's costs as agreed, or, failing agreement, as taxed.

Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

(i) David Errington of Merrill Lynch Equities (Australia) Limited;

(ii) Martin Yule of Morgan Stanley Dean Witter Australia Limited;

(iii) Tim Buckley of Salomon Smith Barney Australia Securities Limited;

(v) Greg Dring of Macquarie Equities (Australia) Limited;

(vii) Stuart Jackson of JP Morgan Securities Australia Limited;

(viii) Larry Gandler of Credit Suisse First Boston Australia Equities Limited;

(ix) David Cooke of ABN AMRO Equities Australia Limited;

(x) Raymond Gin of Deutsche Securities Australia Limited; and

(xi) John Burgess of BNP Paribas Equities (Australia) Limited.

IN THE MATTER OF SOUTHCORP LIMITED (ACN 007 722 643)

1 The parties informed me that this proceeding is the first to come before a court in which a civil penalty is sought for contravention of the continuous disclosure provisions relating to corporations. The current provisions were introduced into the Corporations Act 2001 (Cth) (`the Act' - except where stated otherwise, references to sections are references to sections of the Act) as Ch 6CA (ss 674-678), effective on and from 11 March 2002. They succeeded earlier continuous disclosure provisions dating from 1994, referred to below.

2 The continuous disclosure provisions are intended, inter alia_,_ to prevent selective disclosure of market sensitive information.

3 The defendant (`Southcorp') is a well known wine producer. I was informed that at the relevant time, Southcorp was, by market capitalisation, the seventeenth largest listed company in Australia.

4 The plaintiff (`ASIC') alleges that on 18 April 2002 Southcorp, through its then Executive General Manager of Corporate Affairs, Glen Cunningham, disclosed by email to eleven analysts, the following information:

(a) that all of the defendant's 2000 vintage super premium wines were expected to be sold in the 2003 financial year; and

(c) that the gross profit impact of the poor 2000 vintage on the 2003 financial year compared to the 2002 financial year was expected to be of the order of $30 million

5 The parties are agreed that Mr Cunningham's conduct gave rise to a contravention by Southcorp of the continuous disclosure provision found in subs 674(2) of the Act. That subsection is one of the Act's `civil penalty provisions', and if a court is satisfied that a person has contravened such a provision, it must make a declaration of contravention: subs 1317E(1). Where a declaration of contravention has been made and certain other conditions are satisfied, subs 1317G(1) empowers the Court to order the contravener to pay to the Commonwealth a pecuniary penalty of up to $200,000. The parties are agreed that those conditions are satisfied and that the Court should impose a pecuniary penalty on Southcorp. They have also jointly submitted that an appropriate level of penalty is $100,000.

6 For the reasons which appear below, I also consider this level of penalty appropriate.

7 A review of the legislative history of the continuous disclosure provisions shows the importance that the legislature and the regulator have attached to them, and the publicity which has been given to them.

8 In June 1991 the then Commonwealth Attorney-General, Michael Duffy, requested the Companies and Securities Advisory Committee (`the Committee') to examine the need for a legislatively-based continuous disclosure régime.

9 The Committee reported in September 1991. It noted that while the Corporations Law (`the Law') required disclosure of information in particular sets of circumstances, it did not contain a comprehensive scheme for the full and accurate disclosure of market sensitive information on a timely basis. The Committee noted that Australian Stock Exchange (`ASX') Listing Rules required a listed company or trust to notify its home exchange `immediately' of any information that was necessary to avoid the establishment of a false market in its securities, or that was likely to affect materially the price of its securities. The Committee recommended the introduction of a statute-based enhanced disclosure régime which would:

* `overcome the inability of general market forces to guarantee adequate and timely disclosure by disclosing entities;

* encourage greater securities research by investors and advisors, thereby ensuring that securities prices more closely, and quickly, reflect underlying economic values;

* ensure that equity and loan resources in the Australian market are more effectively channelled into appropriate investments, and that funds are withheld or withdrawn from poorly performing disclosing entities. This will promote capital market efficiency;

* assist debt holders in monitoring the performance of disclosing entities and thereby determine whether, or when, to exercise any right to withdraw or reinvest their loan funds, or convert debt to equity;

* act as a further, or substitute warning device for holders of charges over corporate assets, that breaches in covenants may have taken place, or the risk of default has increased;

* assist potential equity or debt holders of disclosing entities to better evaluate their investment alternatives;

* lessen the possible distorting effects of rumour on securities prices;

* minimise the opportunities for insider trading or similar market abuses;

* improve managerial performance and accountability by giving the market more timely indicators of corporate performance;

* encourage the growth of information systems within disclosing entities. This assists directors in their decision making and compliance with their fiduciary duties; and

* reduce the time and costs involved when preparing takeover and prospectus documents.'

10 Following a process of consultation, the Government decided to introduce continuous disclosure provisions into the Law. On the Second Reading Speech on the Corporate Law Reform Act (No 2) 1992 (Cth), which contained continuous disclosure provisions proposed to commence on 31 December 1993, Senator Bolkus, Minister for Administrative Services, stated:

`... an effective disclosure system will often be a significant inhibition on questionable corporate conduct. Knowledge that such conduct will be quickly exposed to the glare of publicity, as well as criticism by shareholders and the financial press, makes it less likely to occur in the first place.

In essence, a well-informed market leads to greater investor confidence and, in turn, to a greater willingness to invest in Australian business.' (Parl Debs, Senate, 26 Nov 1992, 3581)

11 The continuous disclosure provisions were eventually introduced as ss 1001A, 1001B, 1001C and 1001D of the Law by the Corporate Law Reform Act 1994 (Cth) (No 31, 1994) s 4, Sch 1, item 92, and commenced on 4 September 1994. Subsection 1001A(2) provided that a listed disclosing entity must not contravene the continuous disclosure provisions of the listing rules of a securities exchange applicable to the entity, by `intentionally, recklessly, or negligently' failing to notify the securities exchange of information that was not generally available, and which, if it were generally available, a reasonable person would expect to have a material effect on the price or value of the securities of the entity.

12 An important difference between the present Ch 6CA of the Act and the former ss 1001A-1001D of the Law is that the requirement of intentionality, recklessness or negligence has not been retained.

13 In November 1999 ASIC issued a `Draft ASIC guidance and discussion paper', entitled `Heard it on the grapevine ...'. The paper offered guidance to companies on good disclosure practice. For example, it advised that companies should:

`[h]ave a procedure for reviewing briefings and discussions with analysts and ensuring that shareholders are not denied access to any significant background information given to analysts.'

The paper referred to the relevant sections of the Law and to ASX Listing Rules 3.1 and 15.7 (those set out in [22] below). The paper stated that ASIC recognised the important place that analysts occupied in Australian markets and the valuable contribution their research made to keeping the market informed. It stated that ASIC was not suggesting that listed companies should not continue briefings for institutions and analysts, or that such briefings were inherently unfair or illegal. The paper asserted, however:

`Keeping the investor community fully informed and resisting pressure to give preferential access to analysts and institutions enhances corporate credibility and investor confidence, with a positive influence on share prices. Adherence to good disclosure policies also ensures that analysts and institutions are seen to be performing wholly on their merits.'

14 On 23 August 2000 ASIC published a document entitled `Better disclosure for investors'. This document suggested practical steps which a listed company could take to ensure that it met the letter and spirit of the continuous disclosure requirements of the Law and the ASX Listing Rules. Under the heading, `Briefing analysts', the following advice was given:

`Reviewing discussions

8. Have a procedure for reviewing briefings and discussions with analysts afterwards to check whether any price sensitive information has been inadvertently disclosed. If so, give investors access to it by announcing it immediately through the stock exchange, then posting it on the company web site. Slides and presentations used in briefings should be given to the stock exchange for immediate release to the market and posted on the company web site.

Handling unanticipated questions

9. Be particularly careful when dealing with analysts' questions that raise issues outside the intended scope of discussion. Some useful ground rules are:

* only discuss information that has been publicly released through the stock exchange;

* if a question can only be answered by disclosing price sensitive information, decline to answer or take it on notice. Then announce the information through the stock exchange before responding.

Responding on financial projections and reports

10. Confine your comments on market analysts' financial projections to errors in factual information and underlying assumptions. Seek to avoid any response which may suggest that the company's, or the market's, current projections are incorrect. The way to manage earnings expectations is by using the continuous disclose regime to establish a range within which earnings are likely to fall. Publicly announce any change in expectations before commenting to anyone outside the company.'

15 On the same day (23 August 2000), ASIC and ASX issued a media release headed `ASIC & ASX JOIN FORCES FOR BETTER DISCLOSURE BY LISTED COMPANIES'. The media release announced that ASIC and ASX had joined forces to provide listed companies with `principles designed to improve investor access to company information'. It drew attention to ASIC's contemporaneous paper, `Better disclosure for investors' (see [14] above). It also referred to an announcement by ASX of a review of its existing guidance note on continuous disclosure under ASX Listing Rule 3.1, which would include reference to the new joint ASIC-ASX principles. The joint media release stated that the joint initiative followed the November 1999 release of ASIC's discussion paper, `Heard it on the grapevine ...' (see [13] above). In these ways the media release drew the reader's attention to ASIC's earlier pronouncements on continuous disclosure.

16 On 1 March 2002 ASX published `Guidance Note 8 - Continuous Disclosure: Listing Rule 3.1'. Guidance Note 8 stated (in par 1) that it was published `to assist listed entities to comply with their obligations under listing rule 3.1 ...'. The guidance note also contained ASIC's `Better disclosure for investors' guidance principles (see [14] above), which, the guidance note stated, ASX endorsed.

17 Chapter 6CA (Continuous disclosure) was introduced into the Act by the Financial Services Reform Act 2001 (Cth) (No 122, 2001) s 3, Sch 2, item 24, with, as noted earlier, effect on and from 11 March 2002.

18 Subsections 674(1) and (2), s 676 and s 677 provide as follows:

`674(1) Obligation to disclose in accordance with listing rules. Subsection (2) applies to a listed disclosing entity if provisions of the listing rules of a listing market in relation to that entity require the entity to notify the market operator of information about specified events or matters as they arise for the purpose of the operator making that information available to participants in the market.

674(2) [Obligation of entity to provide information to market operator] If:

(a) this subsection applies to a listed disclosing entity; and

(b) the entity has information that those provisions require the entity to notify to the market operator; and

(c) that information:

(i) is not generally available; and

(ii) is information that a reasonable person would expect, if it were generally available, to have a material effect on the price or value of ED securities of the entity;

the entity must notify the market operator of that information in accordance with those provisions.

676(1) [Effect] This section has effect for the purposes of sections 674 and 675.

676(2) [When information generally available] Information is generally available if:

(a) it consists of readily observable matter; or

(b) without limiting the generality of paragraph (a), both of the following subparagraphs apply:

(i) it has been made known in a manner that would, or would be likely to, bring it to the attention of persons who commonly invest in securities of a kind whose price or value might be affected by the information; and

(ii) since it was so made known, a reasonable period for it to be disseminated among such persons has elapsed.

676(3) [Deductions, conclusions or inferences] Information is also generally available if it consists of deductions, conclusions or inferences made or drawn from either or both of the following:

(a) information referred to in paragraph (2)(a);

(b) information made known as mentioned in subparagraph (2)(b)(i).

677 For the purposes of sections 674 and 675, a reasonable person would be taken to expect information to have a material effect on the price or value of ED securities of a disclosing entity if the information would, or would be likely to, influence persons who commonly invest in securities in deciding whether to acquire or dispose of the ED securities.'

19 The expression, `listed disclosing entity', is defined in subs 111AL(1). Southcorp was, at the relevant time, a `listed disclosing entity' by virtue of ss 111AD and 111AE. The expression `ED securities' (short for `enhanced disclosure securities') is defined in s 9 by reference to s 111AD. The shares in Southcorp are included in the official list of the listing market operated by ASX, and are ED securities. Subsection 111AP(1) provides that a disclosing entity is subject to the continuous disclosure requirements of, relevantly, s 674.

* if a Court is satisfied that a person has contravened subs 674(2), the Court must make a declaration of contravention, and

`Corporation/scheme civil penalty provisions. A Court may order a person to pay the Commonwealth a pecuniary penalty of up to $200,000 if:

(a) a declaration of contravention by the person has been made under section 1317E; and

(aa) the contravention is of a corporation/scheme civil penalty provision; and

(b) the contravention:

(i) materially prejudices the interests of the corporation or scheme, or its members; or

(ii) materially prejudices the corporation's ability to pay its creditors; or

(iii) is serious.'

Subsection 674(2) is a `corporation/scheme penalty provision': s 1317DA. It is common ground that Southcorp's contravention was `serious'.

22 The relevant provisions of the relevant ASX Listing Rules at the time of the contravention by Southcorp on 18 April 2002 (prior to changes made as from 1 January 2003) were as follows:

`3.1 Once an entity is or becomes aware of any information concerning it that a reasonable person would expect to have a material effect on the price or value of the entity's securities, the entity must immediately tell ASX that information. This rule does not apply to particular information while each of the following applies.

3.1.1 A reasonable person would not expect the information to be disclosed.

3.1.2 The information is confidential.

3.1.3 One or more of the following applies.

(a) It would be a breach of a law to disclose the information.

(b) The information concerns an incomplete proposal or negotiation.

(c) The information comprises matters of supposition or is insufficiently definite to warrant disclosure.

(d) The information is generated for the internal management purposes of the entity.

(e) The information is a trade secret.'

`15.7 An entity must not release information that is for release to the market to any person until it has given the information to ASX and has received an acknowledgement that ASX has released the information to the market.

15.7.1 However, an entity may release information that is for release to the market, if it becomes available outside the hours of operation of the company announcements office, to an overseas stock exchange that requires it. In that case, the entity must fax the information to the company announcements office at the same time, together with advice that it has released it.'

(my emphasis)

23 In order to assess the impact of the release of the Information, it is necessary to note earlier releases of related information by Southcorp.

24 On 7 June 2000 Southcorp issued a media release to the market by sending it to the Company Announcements Office of ASX. Headed `Southcorp 2000 vintage and market report', it contained information regarding Southcorp's 2000 vintage, including tonnage, forward sales requirements, red and white grape intake and the financial effects of lower vintage volume. It stated that Southcorp's total tonnage was 210,000 tonnes, down 6% on the 1999 vintage, and included the following paragraph:

`Mr Graham Kraehe, Chief Executive Officer, said that while the vintage volume was lower than expected in premium fruit, the financial impact would not be felt this year but would be spread over the next five years as the premium wine from the 2000 vintage is released.'

No doubt the reference to `this year' was a reference to the financial year ending 30 June 2000, and the reference to the `next five years' was a reference to the financial years ending 30 June 2001, 2002, 2003, 2004 and 2005.

25 According to par 15 of the parties' Statement of Agreed Facts (`SOAF'):

`The period from vintage intake to sale by Southcorp varies from wine to wine and, in the case of some of Southcorp's premium red wines, which have a longer maturation period, can range from three to five years. Accordingly, wine from a particular vintage is not generally sold by Southcorp in the year of its vintage and the profit impact of a poor vintage may not be felt by Southcorp for a number of years after that vintage.'

26 After the media release, the following seven analysts' reports were issued concerning Southcorp:

* Report issued by JB Were & Son dated 7 June 2000;

* Report issued by Merrill Lynch dated 7 June 2000;

* Report issued by Macquarie Research Equities dated 8 June 2000;

* Report issued by Salomon Smith Barney dated 15 June 2000;

* Report issued by Deutsche Bank dated 19 July 2000; and

* Report issued by BNP Paribas Equities dated 7 August 2000.

27 These reports estimated, with differing degrees of particularity, the likely effect of the lower vintage for 2000. For example, the JB Were & Son report stated:

`The profit momentum in the wine business will be moderated in F02-F03 (and maybe F04) by the poor 2000 vintage, although there is some ability to manage that given the rolling cycle of product from various vintages influencing profitability. We estimate the EBIT [Earnings Before Interest and Tax] impact could be around $30m over F02-F03.' (my emphasis)

`Southcorp's harvest intake for CY2000 declined 6.0% to 21,000 tonnes, which was 12.5% below internal expectations of 240,000 tonnes. For a premium producer a poor vintage impacts the five years following the poor harvest, with year one and two feeling the greatest impact (FY2001 and FY2002 in this case) being the key release dates for the CY2000 vintage**. The impact of the CY2000 harvest is expected to cost the group $30m in EBIT over these five years**.' (my emphasis)

The other five analysts' reports did not estimate the impact at $30 million, and even the JB Were & Son and BNP Paribas Equities reports did not forecast that their estimated $30 million impact would occur within a single year. Yet both predictions formed part of the Information (see [4] above).

28 The events of 2002 are set out in pars 17--43 of the SOAF which, omitting headings, are as follows:

`17. On 26 February 2002 Southcorp lodged with the ASX its interim results for the first half of the 2002 financial year... .

18. On 19 March 2002, at Southcorp's Annual Business Conference, which was attended by Southcorp's senior executive staff, including Mr Cunningham, it was estimated that the effect of the poor 2000 vintage on Southcorp's profit for 2003 could be in the order of $32 million.

19. Most significant ASX listed companies are "covered" by a number of analysts from the major investment banks and brokers. The term "consensus" refers to the average profit forecast that is estimated by the principal analysts that "follow" or analyse a listed company's shares at any given time.

20. It was Mr Cunningham's practice, twice a year following the publication of Southcorp's interim and annual results, to review reports published by the various analysts and provide the board of directors with an indication of the "consensus".

21. In early April 2002, Mr Cunningham prepared a consensus report in table format by:

(a) requesting principal analysts [eleven] to provide their profit forecasts;

(b) reviewing the forecasts and speaking with some analysts to understand their methodology; and

(c) assembling each forecast in a table.

22. Mr Cunningham sent the consensus table to each analyst by email dated 4 April 2002 and received responses to the email from 9 of the 11 analysts emailed... .

23. Mr Cunningham was examined by ASIC on 2 July 2002 and, in his examination, advised ASIC officers that he considered the responses to his email and formed the view that, at least one analyst may not have taken into account the adverse impact of the 2000 vintage.

24. At about 4:29 -4:30 pm on 18 April 2002, Mr Cunningham forwarded an email in identical form and content to the following analysts (the Analysts) who researched Southcorp and were employed by 11 separate broking firms or companies associated with those firms (the 18 April Email):

(a) David Errington of Merrill Lynch Equities (Australia) Limited;

(b) Martin Yule of Morgan Stanley Dean Witter Australia Limited;

(c) Tim Buckley of Salomon Smith Barney Australia Securities Limited;

(d) Paul Ryan of JB Were Limited;

(e) Greg Dring of Macquarie Equities (Australia) Limited;

(f) Girish Pamnani of Goldman Singapore Pte;

(g) Stuart Jackson of JP Morgan Securities Australia Limited;

(h) Larry Gandler of Credit Suisse First Boston Australia Equities Limited;

(i) David Cooke of ABN AMRO Equities Australia Limited;

(j) Raymond Gin of Deutsche Securities Australia Limited; and

(k) John Burgess of BNP Paribas Equities (Australia) Limited.

...

25. Paragraph 4 of the 18 April Email stated as follows:

"The second is the impact of the poor 2000 vintage from the sale of the super premiums (Penfolds and Wynns). As I have discussed with a number of you the Gross Profit impact on 2003 compared to this year (which will have the normal 1999 vintage flow on) is expected to be in the order of $30 million. Because of the small vintage all the 2000 vintage super premiums are expected to be sold in the 2003 year. I know some of you have taken this into account while others have not ."

26. After receipt of the 18 April Email, and before pre-open trading commenced on 19 April 2002, the following analysts issued updated reports to clients concerning Southcorp ... :

* Report issued by Merrill Lynch dated 18 April 2002;

* Report issued by Macquarie Research Equities dated 19 April 2002; and

* Report issued by Salomon Smith Barney dated 19 April 2002.

27. In the Business Review Weekly Top 500 for 2002, based on the largest Australasian companies ranked by market capitalisation, Southcorp was listed as number 17 of 500.

28. From 18 April 2002 to 22 April 2002, Southcorp's issued share capital totalled 738,720,488 shares.

29. On 18 April 2002 (open + 3 minutes), 43 trades occurred in Southcorp's shares comprising a volume of 66,172 shares being sold.

30. The last trade during normal trading in Southcorp's shares on 18 April 2002, which occurred prior to the time at which the 18 April Email had been sent to the Analysts, took place at 4.05 pm at $6.27 per share.

31. On 18 April 2002, Southcorp's shares traded at:

(a) at a volume weighted average price (VWAP) of $6.26; and

(b) a volume of 3,577,176 shares.

32. During the period 2 April to 18 April 2002 inclusive, Southcorp's shares:

(a) traded at prices varying between $6.20 and $6.67 and at VWAP of $6.42; and

(b) daily trades ranged between 514,068 and 3,577,176 with the average daily volume of those trades being 1,818,487.

33. The Opening trades at the commencement of Normal Trading in Southcorp's shares on 19 April 2002 took place at 10.09 am at $5.90 per share. Prior to the commencement of Normal Trading, there is a period referred to as the "Pre-opening phase" during which Bids and Asks can be entered into SEATS [Stock Exchange Automated Trading System] but not executed until the commencement of normal trading.

34. From 10.09 am to 10.12 am (open + 3 minutes) on 19 April 2002, 185 trades occurred in Southcorp's shares comprising a volume of 1,051,607 shares being sold. The majority of the trades (127 trades) occurred at the commencement of Normal Trading as a result of Bids and Asks entered or amended during the Pre-opening phase.

35. In the period between the close of trading on the ASX on 18 April 2002 and 10.12 am on 19 April 2002:

(a) the price of Southcorp shares fell by $0.33 or 5%; and

(b) the market capitalisation value of the shares in Southcorp fell by $243,777,761.04 ([738,720,488 x $6.27 = $4,631,777,459.76] - [738,720,488 x $5.94 = $4,387,999,698.72]).

36. At approximately 10.12 am on 19 April 2002, Bloomberg issued a release to the market. [The Bloomberg report stated that shares in Southcorp had fallen by as much as 7.5% `after the Australian winemaker told analysts to cut their fiscal 2003 earnings estimates because of a lower 2000 premium grape harvest and higher interest bill'. This statement was inaccurate. Mr Cunningham's email of 18 April 2002 had merely suggested to analysts, as the Bloomberg report itself later acknowledged, `[y]ou may wish to review your numbers...'.]

37. At or about 1.07pm on 19 April 2002 the ASX halted trading in the securities of Southcorp by placing them in pre-open at the request of Southcorp (the Trading Halt).

38. During the period 10.09am to the Trading Halt, Southcorp's shares traded at:

(a) VWAP of $5.94 and the last trade took place at 1.07pm at $5.82; and

(b) a volume of 9,149,005 shares.

39. In the period between the close of trading on the ASX on 18 April 2002 and the Trading Halt:

(a) the price of Southcorp shares fell by $0.45 or 7%;

(b) the volume of Southcorp shares traded was five times the average daily traded volume in the period 2 to 18 April 2002; and

(c) the market capitalisation value of the shares in Southcorp fell by $332,424,219.60 ([738,720,488 x $6.27 = $4,631,777,459.76] - [738,720,488 x $5.82 = $4,299,353,240.16]).

40. At approximately 5.36 pm on Friday, 19 April 2002, after discussions with David White of the ASX, Southcorp made an ASX profit clarification announcement via the ASX and subsequently issued a media release in the same form as the announcement ....

41. After the announcement referred to in paragraph 40 was made by Southcorp, the ASX agreed to the lifting of the Trading Halt and trading commenced on 22 April 2002.

42. On Monday, 22 April 2002, which was the first full day of trading after the Trading Halt, Southcorp's shares traded at:

(a) a VWAP of $5.84; and

(b) a volume of 11,551,194 shares.

43. Southcorp's issued capital was valued at:

(a) $4,631,777,459.76 as at the close of trading on 18 April 2002 (738,720,488 issued shares x $6.27 per share); and

(b) $4,314,127,649.92 as at 22 April 2002 (738,720,488 issued shares x $5.84 per share).'

(my emphasis)

29 The parties make the following admissions and concessions in the SOAF:

`44. Southcorp admits that the information contained in the 18 April Email that:

(a) all the 2000 vintage super premium[ wine ]s were expected to be sold in the 2003 [financial] year; and

(b) the gross profit impact of the poor 2000 vintage on [the] 2003 [financial year] compared to the 2002 [financial] year was expected to be [of] the order of $30 million; (the Information)

was information that it had not previously released to the market by notifying it to the ASX or otherwise.

45. Southcorp asserts that as at 18 April 2002, it had not formed a final view on the actual impact of the poor 2000 vintage on 2003 and the $32 million figure (referred to in paragraph 18) remained an internal management estimate or forecast which was subject to change. ASIC accepts that there is no evidence to the contrary.

46. ASIC accepts that prior to the release of the Information to the Analysts, Southcorp did not have an obligation to disclose the Information under Listing Rule 3.1 because the Information was covered by the exception referred to in the Listing Rule.

47. Southcorp admits that:

(a) the Information was material within the meaning of section 674 of the Act; and

(b) at the time the Information was released to the Analysts, it was not generally available to the market.

48. Southcorp admits, that by sending the 18 April Email, Southcorp communicated the Information selectively to the Analysts, without first disclosing it to the entire market by notifying it to the ASX and thereby contravened section 674(2) of the Act by reason of its failure to comply with ASX Listing Rule 3.1.'

30 The SOAF contains the following other relevant matters:

`49. As at April 2002, the following ... were the only documents Southcorp had relating to continuous disclosure obligations**:**

(a) ASX Guidance Note 8 ...;

(b) a memorandum prepared by the solicitors for Southcorp dated 24 September 1994;

(c) a document entitled "Corporate Affairs - Media Release/Announcement Checklist" dated 7 October 1999;

(d) a document entitled "Information Continuous Disclosure Requirements"; and

(e) a Statement of Corporate Governance Principles dated July 2000.

50. Mr Cunningham gave evidence during his ASIC examination that:

(a) when he joined Southcorp, its company secretary made him aware of the importance attached to ASX Listing Rule 3.1 and he received a copy of the document prepared by the solicitors for Southcorp dated 24 September 1994;

(b) prior to 18 April 2002, he read Southcorp's Statement of Corporate Governance Principles, the document entitled "Information Continuous Disclosure Requirements" and ASX Guidance Note 8 ...;

(c) he did not consult with anyone within Southcorp prior to sending the 18 April Email; and

(d) he thought that the information contained in the 18 April Email was not material and was already in the public domain.

51. Southcorp has not filed an affidavit by Mr Cunningham in these proceedings but ASIC accepts that there is no evidence contrary to his assertions to ASIC set out at paragraph 45 above.

52. ASIC accepts that there is no evidence that Mr Cunningham acted dishonestly or with any intent to obtain a benefit or to cause detriment to Southcorp or to the market.

53. Southcorp has not previously been found by a Court to have contravened a civil penalty provision under the Act or the antecedent legislation.

54. Southcorp asserts, and ASIC accepts there is no evidence to the contrary, that for reasons unrelated to ASIC's claim, Mr Cunningham is no longer employed by Southcorp.'

31 I take into account the following considerations as relevant to the appropriate level of penalty:

32 It is important, in the words of Mr Rares, senior counsel for ASIC, `to send the message into the marketplace that contraventions of these provisions are serious and not acceptable'.

Significant fall in the market value of shares in Southcorp immediately following communication of Information to the eleven analysts

33 Whether Southcorp's contravention led to the fall in the market value of Southcorp's shares raises difficult questions. As Mr Bathurst, senior counsel for Southcorp, submitted, `market reaction can be in certain instances a skittish thing'. Mr Rares SC agreed that `the market's behaviour is unpredictable'.

34 It is common ground that because of the exceptions in Listing Rule 3.1, if Southcorp had not disclosed selectively to the eleven analysts, subs 674(2) would not have required Southcorp to notify ASX of the Information. Accordingly, Southcorp would not have contravened subs 674(2) if it had:

(a) not disclosed the Information at all;

(b) disclosed the Information to ASX, rather than only to the eleven analysts.

35 What would have been the course of the market price of its shares if Southcorp had followed course (a) or (b)? Would it have been different, and if so, in what respect, from the course which it in fact followed? We do not know the answers to these questions. There were other factors relating to Southcorp's performance mentioned by the analysts in their reports which may have caused the fall, in whole or in part.

36 In my opinion, the fall in market price which occurred is, nonetheless, relevant for present purposes; that is, even though the fall cannot be shown to have resulted from the disclosure to the eleven analysts. The reason is that selective disclosure is apt to generate confusion and a loss of faith in the market. In the present case, this was likely both to demonstrate itself in, and to arise from, after-the-event belief and assertions that the fall in market price was caused by favoured informants' offloading. Speculation and rumour deriving from selective disclosure is apt to cause a loss of confidence in the market. Selective disclosure is inimical to belief that a level playing field exists, as well as to its existence in fact.

37 Mr Rares characterised the sending of the 18 April email by Mr Cunningham as an `honest blunder'. There is no suggestion that Mr Cunningham had a fraudulent intent or any other unworthy motive. On the contrary, he seems to have wished simply to ensure that all, rather than some only, of the analysts who had been contacted earlier, took into account facts which he thought Southcorp had already disclosed. In sending the 18 April email, however, Mr Cunningham overlooked the fact that the Information went further than Southcorp's previous disclosure: for example, the Information revealed for the first time Southcorp's adoption of the estimate of $30 million as the gross profit impact of the poor 2000 vintage, and its expectation that the full impact would be felt in the one financial year, 2003.

Southcorp's institution of new disclosure régime

38 Southcorp instituted a new disclosure régime shortly after 18 April 2002 and updated it in June 2003. In this respect, Southcorp led evidence, in opposition to which the Commission led no evidence and made no submissions, to the following effect.

39 On 17 June 2002, Martin Hudson, Chief General Counsel and Company Secretary of Southcorp, sent to the Corporate Governance Committee of the company's Board of Directors, a memo which commenced:

`For some time now I have been concerned that we need to update our formal policy and procedures with respect to compliance with the Company's obligations to disclose information immediately that could affect the price of the value of the Company's shares.

My concern arose not out of a feeling in any way that in its practices the Company was falling short of the standard imposed by the Corporations Act and the ASX Listing Rules (my assessment of the Company's practice in this regard has disclosed no evidence that we have wittingly or unwittingly breached our obligations). The concern arose rather from the fact that we should have up to date formal practices and procedures that are in line with our actual behaviour and the laws that govern that behaviour.'

40 The memo enclosed a ten-page `Continuous Disclosure Policy and Procedures' document which had been prepared for the Company by its solicitors, Allens Arthur Robinson. This document had been prepared at Mr Hudson's initiative in order to update Southcorp's existing `Disclosure Policy and Procedures' in the light of ASIC's `Better disclosure for investors' and ASX's `Guidance Note 8 - Continuous Disclosure: Listing Rule 3.1'. The document gave detailed guidance designed to ensure that Southcorp's officers and staff understood and observed the continuous disclosure provisions. Six paragraphs over some two pages addressed `Briefing investors and analysts'.

41 The Corporate Governance Committee recommended that the Board of Directors adopt the document as stating Southcorp's policy and procedures in relation to continuous disclosure. At its July 2002 meeting the Board did so.

42 On 8 August 2002, Mr Hudson sent the document to the `Executive Committee' and drew that Committee's attention to the importance of ensuring that senior executives and their `direct reports' be familiar with the new policy and procedures.

43 The document was distributed within Southcorp on 12 September 2002, under cover of a memo from Southcorp's Managing Director and Chief Executive Officer, Keith Lambert, which stated, `[i]t is ... very important that you understand the obligations, policy and procedures. ... If you are ever in doubt as to whether you possess information that might need to be disclosed, you must call Martin [Hudson] to discuss.' (emphasis in original)

44 Some ten months later, on 17 June 2003, the `Continuous Disclosure Policy and Procedures' document was updated in the form of a table with three columns: (1) 'Continuous Disclosure Obligations'; (2) 'Relevant Provision'; and (3) 'Comments'. Column (1) included the following:

`2.1 Policy

The policy of Southcorp is:

Unless an__exceptions exception___applyapplies, Southcorp will immediately notify the market by an announcement to the ASX of any information concerning Southcorp that a reasonable person would expect to have a material effect on the price or value of Southcorp shares. ...

3.2 Communication of information

Southcorp must not release information publicly that is required to be disclosed to the ASX until it has received formal confirmation of its release to the market by the ASX. The Company Secretary will verify receipt of such confirmation. ...

4.4 Communication of information

Southcorp will advise the market in advance, through the ASX and on Southcorp's website, of all briefings.

All briefing and presentation materials will be disclosed to the market through the ASX and placed on Southcorp's website.'

(revision markings contained in the original)

45 The new document was adopted by the Board of Directors and distributed within Southcorp under cover of a memo from Mr Lambert's successor as Managing Director and Chief Executive Officer, John Ballard, dated 12 September 2003, which drew attention to its importance. Mr Ballard's memo, like the one a year earlier from Mr Lambert, concluded by directing the reader, if ever `in any doubt as to whether [he or she] possess[ed] information that might need to be disclosed', to call Mr Hudson to discuss the matter.

46 Southcorp's conduct in establishing the new regime tells in its favour on the question of penalty. It is true that by 17 June 2002, the date of the first memo referred to above (from Mr Hudson to the Corporate Governance Committee) ASIC was already, to Southcorp's knowledge, investigating the matter of Mr Cunningham's memo of 18 April 2002. Nonetheless,

(a) according to Mr Hudson's memo, Southcorp already had a `formal policy and procedures with respect to disclosure of information immediately that could affect the price and value of the Company's shares' (the nature of which the evidence does not reveal); and

(b) as Mr Rares conceded, I should, in any event, take into account in favour of Southcorp steps taken by it to amend and update its policies, even after the event.

47 By admitting contravention, Southcorp has obviated the need for lengthy, complex and costly litigation, freeing ASIC staff (and the Court) to attend to other matters. (The proceeding was fixed for hearing for five days commencing on Monday 1 December 2003 and these dates are now made available for other business of the Court.)

Non-involvement of any officer or member of staff of Southcorp other than Mr Cunningham

48 There is no suggestion that any officer or member of staff of Southcorp was involved in the contravention other than Mr Cunningham, or that Mr Cunningham consulted with anyone at Southcorp prior to sending his email of 18 April 2002.

49 Southcorp requested a trading halt following the publication of Mr Cunningham's email of 18 April 2002 and made an ASX profit clarification announcement later that afternoon following discussions with the ASX.

Unlikelihood of further contravention by Southcorp

50 The contravention was a one-off event: for reasons not connected with the circumstances of the present contravention, Mr Cunningham is no longer employed by Southcorp, and, as already observed, Southcorp has updated its continuous disclosure policy and procedures.

LEGAL PRINCIPLES RELEVANT TO PARTIES' JOINT SUBMISSION ON PENALTY

51 In my opinion, I am required to impose the penalty of $100,000 suggested by ASIC and Southcorp if, on the agreed facts, and `having regard to all relevant matters', I can accept that amount as `appropriate', even though I might not have arrived at precisely the same amount: cf NW Frozen Foods Pty Ltd v Australian Competition and Consumer Commission [1996] FCA 1134; (1996) 71 FCR 285 (`NW Frozen Foods') at 290--291 per Burchett and Kiefel JJ (with whom Carr J agreed in the present respect (at 299) ).

52 NW Frozen Foods, like the other cases mentioned below, concerned civil pecuniary penalties imposed under subs 76(1) of the Trade Practices Act 1974 (Cth). The terms of that subsection are not identical to those of subs 1317G(1) of the Act. The former uses the expression `such pecuniary penalty...as the Court determines to be appropriate having regard to all relevant matters', and specifies, but only inclusively, certain of the relevant matters to which the Court may have regard. Subsection 1317G(1), on the other hand, refers only to a `pecuniary penalty of up to $200,000', and neither specifies the criterion of appropriateness nor gives examples of relevant matters which may be taken into account. Nonetheless, in my opinion, the differences are not material for present purposes and NW Frozen Foods is applicable.

53 In NW Frozen Foods, the Court noted the practice followed in numerous cases since the decision of Sheppard J in Trade Practices Commission v Allied Mills Industries Pty [1981] FCA 142; (1981) 60 FLR 38. According to this practice, the Australian Competition and Consumer Commission (or its predecessor, the Trade Practices Commission) and the party admitting contravention, agree on the facts to be put before the Court and on the amount of a pecuniary penalty to be proposed for consideration, and, if thought appropriate, adoption, by the Court.

54 In NW Frozen Foods the Full Court reversed the primary judge, who had imposed, not the penalty of $900,000 proposed by the parties, but a penalty of $1,200,000. Burchett and Kiefel JJ (with whom Carr J agreed in the present respect (at 299)) stated (at 291):

`The Court will not depart from an agreed figure merely because it might otherwise have been disposed to select some other figure, or except in a clear case.'

NW Frozen Foods has been followed in, for example, Australian Competition and Consumer Commission v Real Estate Institute of Western Australia Inc [1999] FCA 18; (1999) 161 ALR 79 at [20] per French J, Australian Competition and Consumer Commission v Roche Vitamins Australia Pty Ltd (2001) ATPR s41-809 at [29] per Lindgren J, and Australian Competition and Consumer Commission v ABB Transmission and Distribution Ltd (2001) ATPR s41-815 at [4] per Finkelstein J.

55 In Australian Competition and Consumer Commission v Colgate-Palmolive Pty Ltd (2002) ATPR s41-880, however, while following NW Frozen Foods, Weinberg J observed (at [34]--[35]) that there is a danger in the position as established by that case, that the Court may be seen as a `rubber stamp'. His Honour added that there could be no criticism of receipt of a joint submission regarding what might be the appropriate range of penalties to be imposed.

56 In Australian Competition and Consumer Commission v The Tasmanian Salmonid Growers Association Ltd [2003] FCA 788, while also following NW Frozen Foods, Heerey J agreed with Weinberg J's comments. His Honour observed (at [24]) that Australian criminal courts do not consider their sentencing discretion to be restricted by an agreement between prosecution and defence. He said it was `not easy to discern a practical difference' between the process of criminal sentencing and that of fixing a pecuniary penalty under s 76 of the Trade Practices Act 1974 (Cth).

57 I do not treat the present parties' joint suggestion of a penalty of $100,000 as a submission that the only appropriate penalty is exactly $100,000 - not one dollar more or less. Rather, I regard the submission as one that a penalty of `about half' the maximum penalty of $200,000 is appropriate.

58 In another case, a regulator might reasonably be expected to supply to the Court, in support of the penalty suggested, not only the customary statement of agreed facts and submissions, but also details of penalties which have been imposed in relevantly similar cases and of the circumstances of those cases. As noted at the outset, however, the present proceeding is special in that it is the first one brought for a contravention of the continuous disclosure provisions.

59 In the light of the considerations identified at [32] to [50] above, the notion of `about half' of the maximum of $200,000 strikes me as an entirely fitting description of the level of penalty called for in the circumstances in this case. Therefore, far from being unable to accept the suggested penalty of $100,000 as appropriate, I have found it difficult to think of any basis on which I should fix any different amount.

60 For the above reasons there will be a declaration of contravention, imposition of a penalty of $100,000, and an order that Southcorp pay ASIC's costs.

I certify that the preceding sixty (60) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Lindgren.

Ms J Redfern of the Australian Securities and Investments Commission