Australian Securities & Investments Commission v Matthews

3. A warrant for the respondent's committal to prison for a period of two months issue.

4. The warrant lie in the Registry to the intent that it not be executed, provided that the respondent refrains from contravening any of the orders made by O'Connor J on 19 February 1999, while any such order remains in force, for a period of twelve months from today's date.

5. The respondent pay the applicant's costs of and incidental to the motion for contempt, as taxed or agreed.

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

BETWEEN: AUSTRALIAN SECURITIES & INVESTMENTS COMMISSION

Contempt is Admitted 1 The respondent, Stephen Lewis Matthews, has admitted that he is guilty of contempt of the Court, in that he has breached an order made against him by a Judge of this Court, O'Connor J, on 19 February 1999. The orders made by her Honour on that date included an order as follows: "4. Until further order the Respondent, Stephen Lewis Matthews, be restrained from publishing reports or allowing to be published reports about securities on the internet including but not limited to the internet site known as 'The Chimes' and situated at http://www.chimes.com.au." 2 The charges admitted by the respondent are set out in the statement of charge filed by the applicant ("ASIC") in accordance with Federal Court Rules ("FCR"), O 40, r 6. They are as follows: "4. The respondent, Stephen Lewis Matthews, is guilty of contempt of the Court in that in breach of the Orders made by Justice O'Connor on 19 February 1999 whereby the Respondent, Stephen Lewis Matthews, was restrained from publishing reports, or allowing to be published reports, about securities on the internet, including but not limited to, the internet site known as 'The Chimes' and situated at http://www.chimes.com.au, the Respondent, Stephen Lewis Matthews, did: ... (d) on 8 March 1999 allow to be published a securities report, entitled "GIO, Goodman F, Flight Center, Omnitech", on the web site known as the Chimes and situated at http://www.chimes.com.au. (e) on 10 March 1999 allow to be published 2 securities reports, entitled "CBA, Harvey Norman, Novogen, Viking Industries, WD&HO Wills" and "BHP, AMP, Redflex, Secure Networks, Liberty One, ICM", on the web site known as the Chimes and situated at http://www.chimes.com.au. (f) on 12 March 1999 allow to be published a securities report, entitled "Cinimagic, Lion Nathan, Harvey Norman", on the web site known as the Chimes and situated at http://www.chimes.com.au. (g) on 13 March 1999 allow to be published a securities report, entitled "HOY, will up profits due to Star Wars release...", on the web site known as the Chimes and situated at http://www.chimes.com.au. (h) on 15 March 1999 allow to be published a securities report, entitled "Richfield Resources, PMP, Ozemail, Macquarie Bank, United Energy, Anglo Pacific", on the web site known as the Chimes and situated at http://www.chimes.com.au. (i) on 15 March 1999 allow to be published a securities report, entitled "One, TYA, CUP, WBC, ORI, AWA, ICT, FCL, FMH, IFA, CML, WNT, ABF", on the web site known as the Chimes and situated at http://www.chimes.com.au." It follows that, although the respondent at one stage foreshadowed an argument that the terms of the orders made by O'Connor J were unclear or ambiguous, that argument has been abandoned in relation to order 4: cf Microsoft Corporation v Marks (No 1) (1996) 69 FCR 117 (FC), at 139-141 per Beaumont J; at 143, per Lindgren J. 3 The ASIC originally sought orders that the respondent had been in contempt by reason of breaches of other orders made by O'Connor J on 19 February 1999. However, the ASIC has not pursued these additional charges. Accordingly, the only issues to be resolved are the penalty that should be imposed on the respondent for his admitted contempt and the appropriate costs order.

Background to the Orders 4 On 16 February 1999, the ASIC instituted proceedings against the respondent alleging, inter alia, that the respondent had contravened s 781 of the Corporations Law, by carrying on an investment advice business or holding himself out as an investment adviser, without holding the requisite licence or being exempt from the licensing requirement. In particular, the ASIC alleged that the respondent had systematically published advice about securities on an internet website maintained by him, known as "The Chimes". 5 On 19 February 1999, O'Connor J heard an application by the ASIC, pursuant to s 1324(4) of the Corporations Law, for interim injunctions against the respondent. The respondent represented himself at the hearing. 6 The ASIC relied on five affidavits to support its case. One of those affidavits recorded that, on 10 February 1999, a bulletin board on "The Chimes" internet site had referred to an announcement supposedly released by CMC Power Systems Ltd ("CSY"), a company listed on the Australian Stock Exchange, the previous day. In fact the company had made the announcement one year earlier. The appearance of the information on the bulletin board coincided with exceptionally heavy trading on the shares of CSY, during which the price of its shares increased by eighty-two per cent. 7 The respondent made oral submissions in opposition to the ASIC's application to O'Connor J for interlocutory relief. He informed her Honour that he was familiar with s 781 of the Corporations Law and with ss 18 and 77 (which define, respectively, the expressions "carrying on business" and "investment advice business"). The respondent did not dispute that he was the publisher of "The Chimes". Nor did he seem to dispute that he had been responsible for posting the information concerning CSY. However, he contended that members of the public were free to place information on the internet site for all to view. It followed, according to the respondent, that a posting on the internet site could not constitute "advice". The respondent also submitted that he had not been carrying on a business because he was conducting the site "for pleasure" and, in any event, it was merely an "electronic sandwich board". 8 In the course of the argument, O'Connor J indicated that she was inclined to grant interlocutory relief. The respondent referred to par (d) of the orders sought by ASIC (which was in substantially the same terms as order 4 ultimately made by her Honour) and the following exchange took place: "I mean, how am I to - in other words - I have to close down the site. This electronic sandwich board has to be closed down. I am not able to prevent any person at this point in time posting any such report or any matter--- HER HONOUR: You can stop E-mail on a site, there's no--- MR MATTHEWS: It's not E-mail, it's a posting available to any person who is Internet-connected. HER HONOUR: But there must be a control you can use to prevent people from interfering with your site. MR MATTHEWS: There is a control mechanism for me to see, oh, there's a report about securities, yes, there's a mechanism available to me to remove it. HER HONOUR: The effect of that order as sought is that if you want to conduct the sort of site you have and you cannot buy a variation - change the modus operandi of that, it may have that effect. That would be something that would have a technical consequence I would judge." 9 O'Connor J then stated the precise terms of the orders she proposed to make and, after a short adjournment, delivered a judgment giving her reasons for making the orders. A discussion then took place as to whether an amendment should be made to the orders The following interchange occurred: "MR MATTHEWS: Yes, I would like to invite you to allow the variation. The difficulty I have is at this point in time on the orders that you've given I just about just have to shut the site down, which is what I don't want to do. HER HONOUR: You've heard my view of that. It might be a pleasure that you'll have to forego for a little while. MR MATTHEWS: For a little while. But if allowing reports to be published, if they're consenting to that, then all right. MR STACK: No, your Honour, that's precisely what we're not doing and you'll see that paragraphs (a) and (b) refer to the general advising and publishing full stop. Paragraph (c) and (d) are aimed at the Internet expressly for that very reason and its in subparagraph (d) that we have the provision inserted, 'or allowing reports to be published'; that's the difference. MR MATTHEWS: Yes, I appreciate that. MR STACK: So there is no difference with what your Honour has said except for the form and I think your Honour's right, the appropriate course is for us to take out in transcript form the orders that your Honour made. ... HER HONOUR: I want you to be absolutely clear what the orders mean. While you are a litigant in person, while its not usual to explain it, you're an intelligent man, you do understand the gist of it, because you also understand the consequences of disregarding them as well --- MR MATTHEWS: I assume gaol, with respect. HER HONOUR: --- could be the antithesis of pleasure but who knows. We always operate on the assumption that, being judges and courts, our orders would be accepted and obeyed. MR MATTHEWS: I will comply with them, that's my intention, it always is. I wonder how long it might be then before I have my moment in court again." The reference to the respondent's "moment in court" was clearly to the final hearing of the principal proceedings. 10 Although order 4 made by O'Connor J did not include a definition of "reports about securities", s 9 of the Corporations Law defines the expression "securities report" to mean "an analysis or report about securities". The term "securities" is defined in s 92 to include shares in a corporation.

The Breaches 11 Although some matters were in contest, there was no dispute as to the course of events after her Honour had made the interlocutory orders. 12 On 21 February 1999, the respondent gave instructions to a person with the necessary expertise to suspend the investment forum conducted on "The Chimes" site. At about the same time, a statement was placed on "The Chimes" site under the hyperlink heading "Public Notice", as follows: "The publisher, Mr Stephen Lewis Matthews, advises that due to interim orders being made in the Federal Court of Australia on Friday 19/2/99 the chimes investor forum will not be available at www.chimes.com.au until further notice (about 2 weeks). The chimesnews.com site will not be commissioned until the hearing of the Federal Court case (still no word from the Court registrar on a hearing date)." 13 On 6 March 1999, the respondent gave instructions for the suspension of the investment forum to be lifted. At that time, a further statement from the publisher was placed on "The Chimes" site, advising that "contributors are not allowed to post securities reports". The statement also advised that "I have approached a few licensed dealers with the intention of obtaining a 'proper authority' to enable me to render advice". 14 The position thereafter was that any person could place information on "The Chimes" site, with or without attribution. The respondent could remove or cause to be removed information placed on the site. The respondent also set up what he described as a "registration program", which required contributors to give themselves a user name and an e-mail address. 15 On 8 March 1999, at 8.56 pm, a report headed "GIO, Goodman F[ielder], Flight Center, Omnitech" was posted in "The Chimes" investor forum. It was said to have been posed by "ferret". This report was in fact written by a Mr Wragg, the holder of an investment adviser's licence under the Corporations Law, who uses the pseudonym "ferret". Mr Wragg did not himself post or authorise the posting of this report on "The Chimes" site. The report analysed precise movements of the stocks referred to in the heading of the report. The respondent denied that he posted the report and his denial was not challenged. 16 Thereafter, a series of reports by "ferret" analysing stock prices and movements appeared on "The Chimes" site. All reports were written by Mr Wragg, but he authorised none of the postings. The reports posed on the site were as follows: · on 10 March 1999, a report entitled "CBA, Harvey Norman, Novogen, Viking Industries, WD&HO Wills" and a report entitled "BHP, AMP, Redflex, Secure Networks, Liberty One, ICM"; · on 12 March 1999, a report entitled "Cinimagic, Lion Nathan, Harvey Norman"; · on 13 March 1999, a report entitled "Hoy[ts], will up Profits due to Star Wars release…"; and · on 15 March 1999, a report entitled "Richfield Resources, PMP, Ozemail, Macquarie Bank, United Energy, Anglo Pacific." 17 On 29 March 1999, Mr Wragg complained to the respondent about the unauthorised use of his reports. The reports were removed shortly after this conversation. 18 On 16 March 1999, a report entitled "One, TYA, CUP, ORI, AWA, ICT, FCL, FMH, IFA, CML, WMT, ABF" was posted on "The Chimes" site purportedly by Rene Rivkin, a well-known share market commentator. The report contained a series of recommendations in relation to particular shares. The report had in fact been prepared for and on behalf of Tarfaya Nominee Pty Ltd ("Tarfaya") which trades as the "Rene Rivkin Report" and holds an investment adviser's licence under the Corporations Law. Tarfaya did not authorise the positing on "The Chimes" site. The report remained on the site until 8 April 1999.

The Respondent's Evidence 19 The respondent gave oral evidence in support of a plea of leniency on penalty. He was cross-examined by Mr Stack on behalf of the ASIC. 20 The respondent claimed that he did not understand that the practical effect of the order made by O'Connor J was that he would have to close down the investor forum on "The Chimes" site. He also claimed that he did not consider at the time that reactivating the site on 6 March 1999 would lead to a breach of the order, because he intended to monitor the postings to eliminate any reports about securities. His explanation for allowing the Wragg and Rivkin reports to remain on the internet site was that he did not at the time understand them to be reports about securities, although he now accepted that that understanding was erroneous. Finally, the respondent claimed to be genuinely sorry to have acted in contempt of the Court by reason of his breaches of order 4 made by O'Connor J on 19 February 1999. 21 The respondent was a singularly unimpressive witness. He was evasive on some issues and gave implausible evidence on others. He conveyed the impression of someone who felt wronged by the orders made by O'Connor J, especially order 4, and who simply did not think it right that he should be required to suspend "The Chimes" site. Indeed, he insisted that suspension of the site was unnecessary, even when it must have been obvious to him that compliance with order 4 could not be assured if third parties were free to post information on the site. He advanced, as an indication of his good faith, undertakings he was prepared to give the Court, apparently oblivious to the fact that they were narrower in important respects than the existing orders he had admitted breaching. In general, I would not accept the respondent's evidence unless it was unchallenged or independently corroborated. 22 The standard of proof in contempt is the criminal standard of proof beyond reasonable doubt: Witham v Holloway (1995) 183 CLR 525. The standard of proof that should be applied at the sentencing stage in contempt proceedings was not the subject of submissions before me. However, I am content to proceed on the basis that a plea of guilty, in itself, carries with it an admission only of the essential elements of the offence admitted by the plea and no more (R v O'Neill [1979] 2 NSWLR 582, at 588, per Moffitt ACJ; Chow v Director of Public Prosecutions (1992) 28 NSWLR 593, at 605) and that any dispute as to the facts beyond that must be proved by evidence and any reasonable doubt about them resolved in favour of the respondent (R v O'Neill, at 590; Chow v DPP, at 605; R v Stephens (1976) 14 SASR 240, at 244-245). 23 The respondent's guilty plea does not of itself establish that he was aware, at the time the orders were made and thereafter, that unless the site were suspended there was a grave risk that order 4 would be infringed. It is difficult, however, to read the transcript of the hearing of 19 February 1999 (which was in evidence in these proceedings) without concluding that the respondent was clearly aware that that was precisely the position. This conclusion is reinforced by the respondent's action in suspending the site two days after the orders had been made. I cannot accept the respondent's evidence that he did not appreciate that a failure to suspend the site, or a decision to lift the suspension, would create a grave risk that he would be in breach of order 4. I find that he appreciated full well that, if the site were not suspended, there was a grave risk that he would be in breach of the orders by reason of reports about securities being published on the site. 24 The guilty plea also does not of itself establish that the respondent was aware at the time the Wragg and Rivkin reports were posted on the site that they constituted "reports about securities" and that, therefore, to permit their publication on "The Chimes" site must have contravened order 4 made by O'Connor J. However, it is difficult to understand how the respondent, who did not dispute that he knew the reports were posted on the site, could not have regarded them as reports about securities. His explanation for forming a different view (as he claimed he had done) verged on the absurd. I do not accept his explanation. I find that the respondent was well aware that, by allowing these reports to be posted on "The Chimes" site and to remain there, he was in breach of the terms of order 4 made by O'Connor J. I also found that the respondent had the means of removing the Wragg and Rivkin reports from the site, but did not do so until about 30 March 1999 (in the case of the Wragg reports) and 8 April 1999 (in the case of the Rivkin report). 25 I have also formed the view that the respondent is not genuinely contrite about his conduct. Despite his protestations, I think that he considers that he did nothing wrong and that order 4 made by O'Connor J imposed an unwarranted restriction on his activities. In my opinion, despite his plea of guilty, he still does not appreciate or acknowledge the seriousness of his actions.

What Penalty Should be Imposed? 26 The contempt of court committed by the respondent was serious. It was not trivial or inadvertent. The respondent knew and appreciated that removing the suspension of the investment forum on the site created a grave risk that order 4 would be breached. He knew that the postings of the Wragg and Rivkin reports breached order 4, yet he took no action over a period of several weeks to rectify the position. As I have found, the respondent has not shown genuine contrition for his actions. 27 Carr J recently made the following observations in Deputy Commissioner of Taxation v Hickey [1999] FCA 259, at [35]: "Any contempt of court is serious. The seriousness transcends matters such as the personal dignity of the judiciary, or the rights [of a particular] litigant in this Court. The offence involves interference with the effective administration of justice, by impeding and perverting its course: Johnson v Grant (1923) SC 789 at 790, per Lord President Clyde. Contempt of court is a matter of basic public significance. Unless the laws of contempt are properly enforced our whole system of justice is at risk." Those observations are pertinent to the present case. 28 On the other hand, although Mr Leamey did not put the respondent's case this way, I think that there are three mitigating factors in the present case. The first is that the respondent pleaded guilty, thereby acknowledging (albeit incompletely) his culpability. Secondly, he did not publish his own reports about securities on the site. Thirdly, the reports that were published, as it happened, were prepared by licensed investment advisers, even though the publication took place without their consent and presumably in breach of copyright. 29 The Court has a wide range of penalties open to it, including a fine and a sentence of imprisonment: Australasian Meat Industry Employees' Union v Mudginberri Station Pty Ltd (1986) 161 CLR 98, at 114-115. In Australian Competition and Consumer Commission v Goldstar Corporation Pty Ltd, unreported, 6 November 1998, Drummond J held that the Court's power to punish for contempt includes power to suspend on condition any sentence of imprisonment that it might impose in respect of the contempt. With respect, I think that his Honour was correct in so concluding. 30 In my opinion, the respondent's conduct, having regard to his lack of contrition, is sufficiently serious to warrant a term of imprisonment for two months. However, in view of the mitigating circumstances, I think it appropriate to suspend the term of imprisonment, on condition that the respondent not contravene, during a period of twelve months, any of the orders made by O'Connor J while those orders remain in force. This form of order has the added virtue, given the respondent's lack of contrition, of driving home the importance of abiding by orders made in the principal proceedings. It also recognises that the respondent has no previous convictions and that, as Carr J pointed out in DCT v Hickey at [34], imprisonment is a measure of last resort. 31 The form of order I propose to make includes the words "while any such order remains in force". I have in mind that some or all of the orders made by O'Connor J may be discharged or may expire prior to the expiration of the twelve month period. I also have in mind that the orders made by O'Connor J, being made pursuant to s 1324 of the Corporations Law, might be affected by the judgment of the High Court in Re Wakim; Ex parte McNally, to be delivered on 17 June 1999. Should the status of the orders made by O'Connor J be affected by that judgment, it is conceivable that the orders ultimately might derive their force and effect by legislation enacted by the New South Wales Parliament. Should that occur, the intention is that the warrant for committal of the respondent to prison can be executed if the respondent contravenes any of the orders made by O'Connor J at a time when he is bound by that order. 32 I should add that I have considered imposing a fine. However, there would be little point to such a penalty, having regard to the fact that the respondent is unemployed and appears to have few resources. Nor do I think that a fine is likely to bring home sufficiently to the respondent the seriousness of his conduct and the need scrupulously to observe orders of the Court.

Costs 33 Mr Stack sought an order for costs in favour of the ASIC on an indemnity basis. Having regard to the fact that the ASIC withdrew some of the charges against the respondent, I think it sufficient that an order be made on the usual basis.

I certify that the preceding thirty-three (33) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Sackville.

Solicitor for the Applicant: Australian Securities & Investments Commission