Australian Securities & Investments Commission v Matthews

EX TEMPORE REASONS FOR INTERLOCUTORY JUDGMENT 1 This is an application pursuant to s 1324 of the Corporations Law brought by the applicant, the Australian Securities and Investments Commission. The respondent is Stephen Lewis Matthews. The application today seeks a series of orders by way of interlocutory relief in respect of the total matter. I have in fact made five orders which will appear with these reasons. 2 The applicant tendered a number of affidavits to which there were no objection. These affidavits are firstly one sworn by Jeremy Stephen Simpson, an internet analyst, and in that affidavit, by means of annexure, are a number of hard copy depictions of material which appear, it is deposed, on an internet site called 'The Chimes'. The material that is included in these hard copies I will return to later in these reasons. 3 The second, third and fourth affidavits are sworn by Maria Catherine Good, the principal investigator with the applicant and they go to the question of the licensing or the exemption from such licensing in relation to the respondent. In the course of the hearing today, the respondent conceded when making submissions that he was neither licensed nor exempt from that licensing so that issue is no longer necessary to be decided. 4 The fifth affidavit is sworn by James Hunter Berry, the manager, (surveillance) of the Australian Stock Exchange ("ASX") and this affidavit deals with a matter relating to trading in shares in a company called CMC Power Systems Limited whose securities are listed and whose ASX code is CSY. None of this material is challenged. This witness expressed the opinion that the trading in CSY in the period 9 to 11 February 1999 had changed from an earlier period. He deposes as to the reception of two calls, one of which was anonymous, giving information about statements made by unknown persons on a bulletin board that appeared on an internet site called 'The Chimes'. 5 The site, 'The Chimes', was examined and the statement which appeared on the website has been placed at 21.29 pm on 10 February by the publisher was in relation to an announcement from CSY. That announcement was released on 9 February 1999, according to the website and subsequently and the other evidence shows that the date of materials in relation to this matter was corrected on the website by the publisher (which the respondent today admitted was him) having corrected the date to demonstrate that the report on which he was commenting was in fact a 1998 report and not a 1999 report. 6 There was evidence that in the period concerned, there was increased activity in the stock on the exchange and, subsequently, when the mistake was acknowledged a decline in the price of the shares. The relevant sections of the Corporations Law that govern this matter are s 18 which provides that the provisions of the law apply to a person who carries on business not necessarily for profit. The heading is "Otherwise than for Profit". Section 77 is relevant in relation to an investment advice business. The respondent, again, in submission, suggested that he could have the benefit of s 77(6). However, the case put by the applicant is that he is prevented from doing so because he fits within the provisions of section 77(7). Persons in that category are not given the benefit of the exemption from s 77 that is provided in s 77(6). The penultimate section that is relevant is s 781 of the Corporations Law which provides that a person must not carry on an investment advice business or hold out that person as an investment adviser unless the person is a licensee or an exempt investment adviser. 7 As I have already pointed out, the respondent has conceded that he does not hold a licence and he is not an exempt investment adviser. The respondent did not provide any evidence for the court to consider in opposing the interlocutory orders, however, he made a number of submissions. The first of them was that the provision of material on the screen of an internet of the kind which is reproduced in the affidavits is not a publication of this material and, after some interchange with him, he agreed that the description of what he was doing was equivalent to having an "electronic sandwich board". 8 I do not think that (even putting what he said at its highest) the use of an "electronic sandwich board" falls outside the description of publishing and, more particularly, a publishing business because Mr Matthews also concedes that his website is conducted continuously and systematically so that it does fit within the description, "to carry on business" as explained in Hyde v Sullivan & Anor [1956] 56 NSWLR 113, a decision of the New South Wales Court of Appeal. No quarrel was taken by Mr Matthews with that definition and it is my view that in relation to the activity taken by Mr Matthews in respect of his website, as he describes it, he is carrying on a business. 9 The question of whether this business is carried on for profit does not arise because that is not necessary to be demonstrated for the purpose of the application. It, however, certainly fits within the definition of carrying on a business contained in Hyde v Sullivan (supra). Mr Matthews put to me that he wasn't in a commercial relationship with subscribers but, as I said, he has admitted to all the other characteristics of carrying on a business. 10 He also submitted that he was not giving advice in the conduct of his electronic site. I do not accept that submission. The parts of the evidence presented by the applicant to which counsel referred, used phrases and words that are all directed to evaluation and encouragement to those reading the site to deal in the share market. It is certainly couched in the ordinary terminology of advice, and I so find. 11 I therefore find that the respondent, who is not licensed or authorised to do so, is carrying on an investment advice business without determining whether that is being done for profit and in the course of conducting the website, 'The Chimes', is holding himself out as an investment adviser. Unless he is licensed or given an exemption as an investment adviser, this activity is, in my view, prima facie in contravention of the Corporations Law and it was for that reason, having taken into account all of the material to which I was referred, that I made the orders sought by the applicant. 12 If Mr Matthews, of course, had been earning his living in conducting the site or could have demonstrated today that there were serious financial or other consequences to him in making the orders, it might have been necessary to have considered both in relation to making interlocutory orders and also the consequences of them. For example expedition or other orders could have been made to prevent any damage being too acute. Counsel for the applicant rightly points out that his client is exempt from any order as to undertaking for damages should Mr Matthews be successful in the main proceeding. 13 However, I am comforted by Mr Matthews' submissions that this activity, in conducting the website, is done for pleasure only and the consequences of him complying with the orders will be to curb that pleasurable activity. The only other consequence he could point to was perhaps press comment on the activities that have been restrained by the order which I described in the context of the hearing of only having an effect on Mr Matthews' ego and would not, in my view, create too much of a burden upon him. 14 The respondent, apart from the submissions about publishing advice and other matters that I have already referred to in these reasons gave no other reason for resisting the injunctive relief. What I have particularly been concerned about and have put great weight upon is the incident which is part of the evidence in relation to the engine company CSY and the serious consequences which are deposed to from that acknowledged mistake contained in Mr Matthews' web site. For those reasons I have made the orders. 15 I propose to make a further order and that is that this matter be now referred to the registrar to be assigned, in the ordinary course, to a docket of a judge of the court for hearing of the application for final relief. The applicant has assured me that it is ready to proceed. It really will be a matter for Mr Matthews to consider any application he may care to make. I certify that the preceding fifteen (15) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice O'Connor .