ASIC v Sharetrend Software Pty Ltd
[2000] VSC 472
•3 November 2000
| SUPREME COURT OF VICTORIA AT MELBOURNE | |
| COMMERCIAL AND EQUITY DIVISION | Not Restricted |
CORPORATIONS LIST
No. 7162 of 2000
| AUSTRALIAN SECURITIES and INVESTMENT COMMISSION | Plaintiff |
| v | |
| SHARETREND SOFTWARE PTY LTD & ORS | Defendants |
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JUDGE: | Mandie J | |
WHERE HELD: | Melbourne | |
DATE OF HEARING: | 3 November 2000 | |
DATE OF JUDGMENT: | 3 November 2000 | |
CASE MAY BE CITED AS: | ASIC v Sharetrend Software Pty Ltd | |
MEDIUM NEUTRAL CITATION: | [2000] VSC 472 | |
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Corporations – application for interlocutory injunction by ASIC – alleged unlicensed investment advice business involving sale of computer software.
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APPEARANCES: | Counsel | Solicitors |
For the Plaintiff | Mr S.L. Tatarka | Australian Securities & Investment Commission |
| For the Defendants | Mr J.R. Dixon | Aitken, Walker & Strachan |
HIS HONOUR:
This application was commenced by originating process filed on 12 October 2000. The plaintiff, ASIC, applied initially under s.93AA of the ASIC Act and s.1324 of the Corporations Law on the basis that the defendants namely Sharetrend Software Pty Ltd and two directors, Mr Szatmari and Mr Thour, were in breach of an enforceable undertaking given under the ASIC Act on or about 13 October 1998 and the plaintiff sought ex parte an interim injunction requiring the defendants to cease doing any act in the marketing and sale of certain computer software known as "Stockmarket Navigator Version 3" or any other program that performed a similar function or generated recommendations for users to buy or sell shares and also they sought an interim injunction against the defendants to cease holding out that they were carrying on an investment advice business and certain other orders.
The material showed that the defendants were marketing a computer software program that had a number of functions and it is unnecessary to refer to all of the functions but the significant function was one which the plaintiff contended generated advice as to what shares to invest in. The evidence also showed that there were exhibitions and displays and seminar type meetings at which the software program was marketed and at which, according to the plaintiff’s evidence, various grandiose claims were made for the software, suggesting that very successful sharetrading could flow from the use of the software.
At any rate, on the basis of the material, on 13 October 2000 I ordered ex parte that until 4.15 on 24 November 2000, the defendants be restrained from marketing and selling the computer software and so on in terms of the application to which I have already referred and also restrained them from holding out they were carrying on an investment advice business, receiving any moneys from any person in connection with the purchase by that person of any securities trading software or training in relation to any securities trading software, and paying, transferring or otherwise parting with possession of all or any of the moneys received from or on behalf of any person in connection with the purchase of that software.
The plaintiff did not give the usual undertaking as to damages at that time. The defendants entered an appearance on 18 October 2000 and applied to discharge the injunction and filed a number of affidavits in answer to the material previously filed by the plaintiff. It is inappropriate to canvass all of the facts and issues raised by the material. I do note, however, that at p.10 of an affidavit of Mr Szatmari there is a print of the screen, one of the screens thrown up by the software, which shows that it generates, on the face of it, suggestions as to which shares the operator of the software might purchase, the headings at the bottom of the screen for particular shares being first choice, second choice, third choice. In paragraph 13 of Mr Szatmari's affidavit he says that, "Although the program must present the selected stocks by a list giving the appearance of ranking, there is in fact no such ranking, this is clearly explained to the user during their training on the software".
Although Mr Szatmari says that there is in fact no such ranking, the screen does appear to generate such a ranking and I suppose it might depend on what else the user is told as to what effect that has on the user. The material shows that users of the software can feed their own criteria in and therefore come up with - from the software - suggestions which fit their own criteria and it may be that it is at least strongly arguable that that is not advice provided by the seller of the software. Certainly on the face of it one can understand that arguments might be put along those lines but the material also shows that if the user does not feed his or her own criteria into the software, there is inbuilt criteria which generates what on the face of it might be described as recommendations.
The plaintiff wishes to argue that sale of the software in the context of the way it is sold and the statements that were made at or about the time of sale constitute the carrying on of an investment advice business without a licence and, as I understand it, the plaintiff also wishes to say that the sale of the software itself constitutes the carrying on of an investment advice business, having regard to the way the software operates.
The defendants dispute these matters. When the application for discharge of the injunction came on last Friday, two preliminary matters were raised by counsel for the defendants, one being that the usual undertaking as to damages should have been given and the other being that there had not been full disclosure by the plaintiff. For reasons which I indicated last week, I do not think that those matters were made out. In short the substance of the application by the plaintiff was to enforce not only the terms of the enforceable undertaking which in turn referred to the provisions of the Corporations Law but also to enforce the provisions of the Corporations Law, although perhaps the originating process could have been clearer. It has since been amended and now makes clear that it is sought by injunction to enforce provisions of the Law or to prevent breaches of the Corporations Law. In those circumstances the plaintiff is not required to give the usual undertaking as to damages (see s. 1324(8)). So far as lack of disclosure is concerned I was not persuaded that that had happened and consider that the affidavit material of the plaintiff disclosed all that needed to be disclosed of a material nature. There is a dispute as to what has passed between the defendants and an officer of the plaintiff but the fact that there was such a dispute appeared from the plaintiff's material although not the full detail of it.
These aspects, I think, at this stage are somewhat academic because the real question is the same question as would have arisen on 24 November, when the injunction was to expire, namely whether the injunction should continue in the terms in which it has presently been granted, or not continue, or be modified, and I suggested last week to Mr Dixon who appears for the defendants that I was reluctant to prevent the defendants from trading at all and asked that he suggest some way of putting restraints upon them by way of warning notices and the like which might deal with the matter pending trial.
The attempt to do that, I think, has thrown up the difficulty of satisfactorily doing it because the plaintiff's argument really is that the essence of the software and the way it is marketed and having regard to the $4,000 or $5,000 which is charged for it shows that an investment advice business is being carried on. I think it is necessary to consider the criteria which are applicable to the grant of an interlocutory injunction. It is not really disputed that there are serious questions to be tried and I am satisfied that there are. Clearly the plaintiff has got an arguable case that the software has been marketed in the past in a way which might properly be construed as the carrying on of an investment advice business. Precisely what that means is a matter yet to be determined and the definition in the Law (see ss. 77 and 781) does not take the matter much further, but clearly there are questions to be tried and there are also questions to be tried in relation to what the software itself does which can only be fully canvassed at trial and about which it is undesirable that I should say any more.
To a great extent this matter depends on the balance of convenience. Mr Dixon drew my attention to a case of Corporate Affairs Commission, New South Wales v Lombard International Pty Ltd reported in (1986) 11 ACLR 566, a decision of Mr Justice Young in the Supreme Court of New South Wales. At pp.570-571, his Honour referred to questions which arise when a public agency, in that case the Corporate Affairs Commission, is not required to give the usual undertaking and what affect that has on the court's consideration as to whether an interlocutory injunction should be granted. At p. 571 he said:
"It is clear in such cases that the court as in cases not involving the public interest, inquires to see whether there is a strongly arguable case and whether damages are an adequate remedy. The court then proceeds to consider the balance of convenience and has a particularly difficult task in so doing because it has to balance the public interest in protecting consumers against the evils that the Act was passed to guard against, on the one hand but, on the other hand, to make sure that the people who are legitimately trading and providing service to the community are not forced to close down before the case has been properly examined by the court. As far as I know there have been no cases as to how the balance of convenience is affected by the provisions of s.157(7) but it is noticeable that most of the cases under the Trade Practices Act in which there is a private plaintiff, the question of balance of convenience has gone one way or the other because of the presence of an adequate undertaking as to damages. The undertaking as to damages is often described as the price that is paid by the plaintiff for the obtaining of an injunction. I examined those cases in Southern Tablelands Insurance Brokers Pty Ltd v Shomberg, (1986) 11 ACLR 337 and there is no purpose in repeating what I there said here. It seems to me that the fact that the court shall not require an undertaking and the fact that an undertaking despite s.157(7) is not proffered is a very material matter to be put into the balance when considering whether or not an order should be made under s.157(7). It is even more essential when the application is made to require a defendant to cease trading in its sole business. Even under the Trade Practices Act the court has baulked at doing that on an interlocutory basis, and the public interest must involve not only protection of consumers, but also the public interest in being able to trade and the jobs of the persons who are involved in the industry.”
I must say that I have some doubt as to whether, with the greatest of respect, what Mr Justice Young says about the effect of a section obliging a court not to require an undertaking is correct. If a court is expressly prohibited by statute from requiring the giving of the usual undertaking as to damages, it may well be thought that it is to do indirectly that which is prohibited directly, to refuse an injunction on the basis that the undertaking is absent, because that is to put pressure on the public authority to give such an undertaking. So I have some doubt about whether the absence of the undertaking where a party is not required to give it is a matter which ought properly be taken into account. However, no doubt any uncompensatable loss which a party enjoined may suffer can hardly be ignored. The result may be the same.
In any event, I have to consider the public interest and I have got to balance that against the right of the defendants to sell their product. I do not think that I am told that this is the sole source of income of the defendants or that some financial disaster is to occur to them if I were to prevent them from selling this item of software; on the other hand I assume that it has been providing a good source of income which will be denied to them, whether or not they ultimately succeed at trial, and which will represent a significant loss to them if they are restrained from selling the software.
On the other hand, having regard to the kind of claims that are made in the sale of the software and having regard to the public interest, I have got to look at that as well. It is indeed as Mr Justice Young suggests, a particularly difficult task. I think the answer in the current case is provided by this factor: I have spoken to the Listing Master and it is possible to find a judge to hear the final trial of this case on
5 December 2000. So what I propose to do is to continue the existing injunction and to order that there be a trial on 5 December and the directions will have to fit in with that date. I have told the Listing Master, rightly or wrongly, that the case will take two to three days and I do not see why it should take any more than that.
So the trial date, as it is in the near future, means that such losses as will be caused to the defendants will only be for a limited period. I might have taken a different view if I could not find a trial date until many months into next year and would have then had to embark on the difficult task of working out some way of protecting the public interest but yet not closing down the defendant's sale of this product completely.
However, in the circumstances, I think that the balance of convenience is satisfied for a short period by continuing the existing injunction. So the formal order will be that the application to discharge the injunction is dismissed and secondly that the orders made on 13 October, and I will identify the particular orders, be continued until the trial of the proceeding or further order.
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