Matthews v Australian Securities and Investments Commission

[2009] HCATrans 197

[2009] HCATrans 197

IN THE HIGH COURT OF AUSTRALIA

Office of the Registry
  Sydney  No S183 of 2009

B e t w e e n -

STEPHEN LEWIS MATTHEWS

Applicant

and

AUSTRALIAN SECURITIES AND INVESTMENTS COMMISSION

Respondent

Application for special leave to appeal

GUMMOW J
HEYDON J
BELL J

TRANSCRIPT OF PROCEEDINGS

AT SYDNEY ON MONDAY, 17 AUGUST 2009, AT 9.33 AM

Copyright in the High Court of Australia

MR P.T. TAYLOR, SC:   May it please the Court, I appear for the applicant.  (instructed by City Law Pty Ltd)

MR S.D. ROBB, QC:   May it please the Court, I appear with MR D.R. STACK for the respondent.  (instructed by Australian Securities and Investments Commission – Sydney)

GUMMOW J:   Yes, Mr Taylor.

MR TAYLOR:   Your Honour, the first matter is that the application was filed out of time and we would seek an order extending the time for the date of the filing of the application.  I understand it is not opposed.

GUMMOW J:   Now, how long is that period?

MR TAYLOR:   It is in the order of 10 days, I think, your Honour.

GUMMOW J:   Is that not opposed?  Yes, well you have that leave.

MR TAYLOR:   There is an amended application which is the document that has been filed and which we proceed upon.

GUMMOW J:   Filed on 12 August.

MR TAYLOR:   Yes.  Thank you, your Honour.  The first ground for special leave concerns whether the correct standard of proof was applied to the question of whether the applicant, by sending the letter to 1,650 persons was undertaking a business of advising in securities and undertaking a business of dealing in securities.  The respondents first say that the criminal standard does not apply to that question.  That is to be seen at paragraphs 4 and 13 of the respondent’s summary of argument.

The primary judge may have had the same view.  His Honour stated at paragraph 2 of the first judgment – if your Honours turn to paragraph 2 of the judgment dated 25 February:

The only factual question is whether the defendant sent the 1,650 letters as alleged.  He admits that he did so.  That matter is accordingly proved beyond reasonable doubt.

When the primary judge made findings about the undertaking of a business he used words such as “I am of the opinion that” and “I am satisfied that”.  If your Honours go to paragraphs 65 and 66 of the first judgment of the primary judge, those are the two paragraphs that concern this finding.

GUMMOW J:   Yes.

MR TAYLOR:   He uses those words.  Your Honours, the Court of Appeal saw the matter differently.  The Court of Appeal thought that the primary judge needed to find proof beyond reasonable doubt and had found the matter proved beyond reasonable doubt, notwithstanding the terminology that the primary judge adopted.  In our submission, a fair reading of those paragraphs of the primary ‑ ‑ ‑

GUMMOW J:   You have to read those paragraphs with paragraph 5 of his Honour’s reasons, do you not?

MR TAYLOR:   Yes, your Honour.

GUMMOW J:   Which is the signpost for everything that follows, in particular, the fifth point made?

MR TAYLOR:   Yes.

GUMMOW J:   The judgment of Justice Finn.  Why would he say that so carefully at the beginning and let it fall subsequently from mind?

MR TAYLOR:   Your Honour, the passage is quoted in paragraph 5 – the quotation from the Metcash decision, although it does plainly in that fifth point state the proper test, when one reads that with what his Honour has said at paragraph 2, that “The only factual question” is the sending out of the letters then, in our submission, it is plain that so far as his Honour was concerned the facts in issue, which must be proved beyond reasonable doubt, is the only factual question listed in paragraph 2.  He thereafter made no reference to the question of onus – of standard.

Your Honours, at paragraphs 51 and 52 of the judgment of his Honour Justice Barrett were comments that were relied upon by the Court of Appeal where his Honour uses the phrase, “It is, to my mind, clear” in 51 and in 52, “It is also clear”.  But paragraph 51 is not relevant to the two charges that were found established against the applicant, that is that goes to the question of whether there was analysis and report about shares.  Paragraph 52, although it is relevant to one of the two charges, it deals only with the question of whether there was advice and therefore, in our submission, is peripheral to the question of whether there was an undertaking of a business.

There is no reference in paragraph 2 to to “It is clear that there was an undertaking of a business”.  There was also no reference in paragraph 52 to the particular second type of business which is the second charge proved, namely the business of dealing in securities.  It is not a matter referred to in paragraph 52.

In our submission, Justice Basten, who also dealt with the matter, his findings were, with respect, similarly deficient.  At paragraph 178 of the Court of Appeal’s decision, your Honours will see that – if your Honours look at paragraph 171, Justice Basten stated the three matters that needed to be established beyond a reasonable doubt.  The second of them was undertaking a business.  In paragraph 177, his Honour quotes the primary judge’s judgment, paragraph 52 and says at 178:

This conclusion demonstrated that each of the three elements was satisfied, in accordance with the particulars provided and on a basis that did not admit of reasonable doubt.  The principles discussed above apply equally to the second charge.

In our submission, his Honour has overlooked the fact that paragraph 52 does not deal in any respect with undertaking of business and, by the last sentence, about the second charge, his Honour has also overlooked that it does not deal in any respect with the element of dealing in securities.

The respondent’s assertion at paragraph 13 of the written submissions that “there were no facts in dispute” and that the applicant conceded the same is plainly wrong in our submission and that, in fact, infects the reasoning of the respondents on this point.  In our submission, in the result the primary judge has not made the relevant findings of undertaking a business and of dealing in securities ‑ ‑ ‑

GUMMOW J:   I think debate is triggered by what you said in your paragraph 39 which spoke about the evidence not being in contest.

MR TAYLOR:   As your Honours well know there is a distinction between matters of evidence and matters of fact.  The evidence was not in contest.  It principally consisted of that letter.  The real question is whether that letter led beyond reasonable doubt to the inference that the applicant was conducting a business of the type alleged.  In our submission, that was not found in terms by the primary judge to the relevant standard and it was not a deficiency cured by the Court of Appeal because, although the matter was a rehearing in the Court of Appeal and the Court of Appeal – there is a finding that they were in as well as good a position as the primary judge to decide the matters and that is a matter with which we would take no issue – the Court of Appeal did not proceed at any stage in the judgment to make a finding that in their opinion a business was established beyond reasonable doubt and thereby the deficiency was not cured.

The second matter that is raised in the special leave application concerns the second and third grounds, the test for undertaking a business.  The primary judge decided, and it was adopted by the Court of ‑ ‑ ‑

GUMMOW J:   That is not a question in the abstract.  It is a question of what this phrase means in the setting of a particular legislation given the subject, scope and purpose of the legislation, which is quite different from a case construing a covenant in restraint of trade where there are private rights involved between parties or whether or not they are in partnership with them under the meaning of the Partnership Act.  This all comes out of these publicly protective provisions, if I can put it that way, in the corporations legislation.

MR TAYLOR:   Your Honour, we accept that those ‑ ‑ ‑

GUMMOW J:   I am just looking at your paragraph 2 in your summary of argument, that is all, which again has triggered a response and a riposte.

MR TAYLOR:   Yes.  I apprehend, if I understand your Honour correctly, that ‑ ‑ ‑

GUMMOW J:   I am just looking at your paragraph 2 of the applicant’s summary of argument.

MR TAYLOR:   Yes.

GUMMOW J:   It seems to say that the Court of Appeal, in construing the Corporations Law provisions and the contempt orders, was somehow bound by these two cases, one of which is a restraint of trade case, another one of which is a partnership case, neither of which is construing this provision of the corporations statute.

MR TAYLOR:   I accept that the circumstances of the type of business ‑ ‑ ‑

GUMMOW J:   It just seems to be raising a false issue in the old sense of the pleading term.

MR TAYLOR:   Your Honour, the test that is characteristic of both of those areas, the restraint of trade and the partnership, concerned a business and, in our submission, the law on what is needed to satisfy the carrying on of a business is not to be found whether the provision is in the Corporations Act or somewhere else without consideration of what those authorities have said as to the meaning of “carrying on a business”.  If the Corporations Act picks up that phrase then, in our submission, the Parliament must be taken to have been aware of what the law was on the meaning of that phrase.  So, in our submission, if this Court has said – and whilst ‑ ‑ ‑

GUMMOW J:   Anyhow, the statutory expression is “undertake”, is it not? 

MR TAYLOR:   There is that difference – undertaking a business as distinct from carrying on a business.  In our submission, though, the Court of Appeal and the primary judge both did not distinguish those cases as being irrelevant to the question of what the phrase in the orders “undertaking a business” meant.  Rather, they purported to, in the first place, adopt the phrase of ‑ ‑ ‑

GUMMOW J:   I realise that.  All I am putting to you is if you have this case up here this is a problem you would raise if you started running this argument in paragraph 2.  That is what you have to grapple with, not what the Court of Appeal did or did not do about it.  What would happen if it came here and how is there a special leave point?

MR TAYLOR:   Yes.  Well, your Honour, we would submit that in any respect of assessing whether a party is carrying on a business or undertaking a business, the two Victorian decisions that say there is a clear distinction between preparatory activities and activities which are the carrying on of a business is a matter that the Court of Appeal was obliged to follow.  The court, far from following that by taking the approach that – or construing the Chief Justice’s statement that “every business must begin with a single transaction” as being really “every business must begin with preparatory steps antecedent to but calculated to produce a first transaction” in our submission obscures entirely the distinction between those things which are preparatory and those things which are the carrying on of a business.

So, in our submission, whether those cases – we accept they are not directly determinative of a business in the particular setting of this case, but the principles that were set out in the Chief Justice’s comments and decision in the Western Gold Mines Case and the two Victorian decisions are, in our respectful submission, overlooked or disregarded by the Court of Appeal in conflating preparatory and business activities.

So that in circumstances such as the present, where the preparatory activities seem to, on the Court of Appeal’s judgment, consist principally of some research on the unnamed listed company, is a far lesser level of preparatory activities, if I can put it that way, than was found in either of those two Victorian decisions.  We submit that those are matters that needed to be taken into account to determine whether beyond a reasonable doubt it was established that this satisfied the terms of the order of undertaking a business.

The final ground of the application is the question of sentence.  If the Court is against us on the first two points, that really whether it is

appropriate to imprison the applicant for careless, perhaps negligent conduct, this was not reckless indifference, as the respondent has wrongly described it, and has, with respect, wrongly submitted that we acknowledged that it was reckless indifference – which we did not, that it was careless and non‑contumacious.  This was, in our submission, an applicant acting, as the primary judge said, without due care and attention as to whether his conduct fell within the prohibited conduct.

If your Honours go to paragraphs 30 to 33 of the sentence judgment, that is where the primary judge sets out these matters and, in our submission, that properly describes an applicant who has carelessly misconstrued the orders, that is misconstrued, if your Honours are against me on the first two grounds and, in our submission, the tenor of this Court’s decision in Morgan is against the proposition that imprisonment is appropriate if a breach of orders is not contumacious or deliberately defined.  If the Court pleases.

GUMMOW J:   Thank you, Mr Taylor.  Yes, Mr Robb.

MR ROBB:   Your Honours, in the respondent’s submission this application does not properly raise any special leave points.  I should start by saying in relation to the first supposed special leave point that my learned friend said that the respondent has submitted that the criminal standard does not apply to the question of whether the applicant conducted the relevant businesses.

What the respondent has submitted is that it accepts that the elements of the contempt must be proved beyond reasonable doubt, but where the point comes, where what the Court is actually doing is deciding what the law is and applying the law, it is not appropriate to think in terms of the Court being satisfied what the law is beyond reasonable doubt.  There is authority for that proposition in Universal Music Australia Pty Ltd v Sharman Networks 150 FCR 110.

GUMMOW J:   What was that case about?  It was a piracy case, was it?

MR ROBB:   Yes, it was the “Kazaa” net arrangement.

GUMMOW J:   Yes.

MR ROBB:   But the proposition that was there made at paragraph [15] was:

Since the publication of the judgment of the High Court in Witham v Holloway (1995) 183 CLR 525 it has been clear that all charges of contempt in Australia must be proved beyond reasonable doubt . . . That is, the facts in issue in all charges of contempt must be proved beyond reasonable doubt; the domestic law and its proper application to established facts are not matters for proof or disproof.

Your Honours, as the presiding judge said, in this case the learned primary judge made clear in paragraph 5 of his judgment that he was well aware of the need to apply the criminal standard.  In our submission, as the Court of Appeal found, on a proper interpretation and reading of the primary judge’s judgment, he proceeded upon the basis that the primary fact was not in issue and the subsidiary evidence effectively spoke for itself.

He construed, starting in paragraph 6 on page 8, the orders, which his Honour, in our submission, correctly noted was a “question of law” and when he got to paragraphs 51 and 52 he stated that, to his mind, the effect of the letter sent to 165 persons was clear ‑ ‑ ‑

GUMMOW J:   It was more than 165.

MR ROBB:   Sorry, I meant 1,650.  Thank you, your Honour.  What seems to be the complaint is what was said by his Honour at page 23 of the printed judgment in paragraphs 65 and 66 where he said:

I am of the opinion that embarking upon a business that has as one of its recognisable activities the publishing of analyses or reports about securities or the giving of advice about securities is conduct prohibited by Order 8 –

Then in paragraph 66 he said:

I am satisfied that, by sending the 1,650 letters, the defendant undertook a business –

et cetera.  Now, the argument seems to be that by this point the trial judge had lost sight of what he had said in paragraph 5 about the need to be satisfied of the facts of the contempt beyond reasonable doubt.  In the intervening time his Honour has considered legal questions, being the proper construction of the orders, and the meaning of “undertaking a business” in the specific context of the provisions of the Corporations Law which underpinned orders 8 and 12 of the orders made by Justice Santow.

Now, in our submission, there is simply no basis properly for concluding that the trial judge or the Court of Appeal lost sight of the criminal onus.  To the extent that there may be – we do not concede this – the use of words which do not continually repeat the criminal onus that does not justify a conclusion that the criminal onus was not applied.  In any event, the use of the words is apposite because, by this stage, the court is stating what its conclusions are by applying its determination of the legal principles to the facts, which ultimately were not in issue in any material way and, in our submission, there is no point of principle ‑ ‑ ‑

GUMMOW J:   The evidence was not in contest.

MR ROBB:   The only thing that was in contest was whether the particular facts in the circumstance constituted the undertaking of a business and, in our submission, when the judgment is analysed the court has made findings as to what the applicant, in fact, did and the court should conclude that those findings were made on the criminal onus.  When the court then goes to the orders and interprets what they mean, that is a legal conclusion and, in our submission, it is not appropriate to think in terms of judges expressing findings of law beyond reasonable doubt.

Your Honours, so far as the second special leave question is concerned, in the respondent’s submission the cases upon which the applicant relies, being Pioneer Concrete Services and Goudberg v Herniman are cases that dealt with the issue of when a business commences in a different context, being the interpretation of a restraint of trade clause and a partnership agreement.

When one looks at the facts of those cases, and they were decided on their facts, it appears, not surprisingly, with respect, that there are investigations which can be carried on by persons who contemplate a business preparatory to their deciding to enter upon it.  That is, in the respondent’s respectful submission, quite a different question to the situation where a particular party does, in the relevant repetitive and systematic way, remembering that here there are 1,650 letters sent out, that are in fact invitations to treat, if not technically offers, which are as both the trial judge and the Court of Appeal recognised, steps involved in carrying out the business.

Now, when one adds to that the fact that the relevant sections of the Corporations Law point the Court to a particular type of business and that business involves the business of advising other persons about securities in the case of order 8, that flows from section 781(a) and section 77(1)(a) of the Corporations Law.  If one just may pause there, in our submission, it is clear when one looks at the letter that was sent to these 1,650 people, that as found by the trial judge in the Court of Appeal, it involved advising other persons about securities.  If that is what the letter involved, in our submission, it is perfectly legitimate for the courts below to find that the relevant nature of the business is that which involves the giving of advice.

It appears that what the applicant says is that because the invitations to treat or call them what you may did not lead to any completed transactions or the earning of any dollar, there was not a business.  In our submission, when the case is seen in that light it should appear that there is not a proper special leave question appropriate in this case because the conception of what is a business upon which the applicant’s case relies is a different conception to that which is thrown up by the relevant provisions of the Corporations Law.

For the sake of completeness, order 12 concerns section 781(a) which is carrying on a securities business which is further defined in section 93(1):

A securities business is a business of dealing in securities.

Then one goes to section 9, which effectively defines “deal” as including:

to make or offer to make, or induce or attempt to induce –

a transaction in securities.  Once it is seen that that is the nature of the business to which order 12 was directed, it is no answer to say that 1,650 letters, which do contain the offers or inducements, is not a step actually in the undertaking of a business.  Were it otherwise, parties in the position of the applicant could do exactly what the Corporations Law prohibited and, accordingly, what the orders prohibited, with impunity for the simple reason that the contravening conduct did not actually bear fruit in the sense of a completed transaction.

Now, in our submission, it is said that in some way the submission just made is inconsistent with what was said by Chief Justice Latham in Western Gold Mines v Commissioner of Taxation (WA) (1938) 59 CLR 729 where his Honour said “Every business must begin with a single transaction”. His Honour said that at 733. When your Honours look at that, your Honours will see that the Court expressed that it was concerned with the problem of isolated transactions and the learned Chief Justice made the observation that every business must begin with a transaction. His Honour was not saying that a business cannot commence until there is a completed transaction. His Honour was dealing in a very general way with a problem that has caused concern to the courts when it is said that a business has been commenced and that is said in relation to a single isolated transaction. If the Court goes to Pioneer Concrete Services [1985] VR 675 ‑ ‑ ‑

GUMMOW J:   That is all about extracting gravel, is it not?

MR ROBB:   It is about extracting gravel, but the one single point I propose to make about it, your Honour, is that at what appears to be page 705, at the paragraph at the bottom of the page the court said:

But the difficulty in the present case is only partly answered by this definition.  There is little doubt that if the respondents obtain the leases and start quarrying for sand and stone, as they indeed hope and intend to do, they will be carrying on one or more of the proscribed businesses.

It is a very short point, your Honour, but in our submission the applicants try to make these two cases stand for more than they do.  In the first place, as noted, they are on a different subject matter and they do not concern, effectively, the interpretation of undertaking business in the Corporations Law.  But the court makes the point that what was factually done in that case was even antecedent to commencing digging the gravel out of the ground.  For what it is worth, your Honour, we would submit that if the Corporations Law is concerned with prohibiting these relevant dealings with securities, the sending of 1,650 letters to members of the public is equivalent to digging the gravel out of the ground before any of it is sold.

Finally, on that subject, your Honours will find just slightly above that extract the reference to the meaning of “business” as dealt with by Lord Diplock in Town Investments Ltd v Department of the Environment where his Lordship said:

“The word ‘business’ is an etymological chameleon; it suits its meaning to the context in which it is found.

In our submission, what that means is that what is said by “business” by the primary judge and the Court of Appeal in this context is not a matter of general principle as to the meaning of the word “business” in all contexts and that is ultimately the reason why it would not be an appropriate special leave question.

So far as the third question is concerned, in our submission, when the primary judge’s penalty judgment is considered it is conventional and unexceptional treatment of all of the factors that should have been taken into account.  The one thing that the applicant does not squarely face is, with respect, this is an astonishing case of recidivism in relation to contravention of court orders.  There is no ultimate point of principle at stake here.

In particular, in our submission, this Court, in Australian Consolidated Press Limited v Morgan, which is the case shown in the draft notice of appeal as the case that underpins the third special leave point, did not decide any general question of principle as alleged.  The Court there was concerned with a situation where a fine had been imposed by a trial judge for the contravention of an interlocutory injunction which was found by two members of this Court, Justices Windeyer and Owen, to have been

ambiguous.  The essential problem was that in that case the supposed contemnor had genuinely adopted an understanding of what ultimately was found to be an insufficiently certain injunction.

This all occurred in the context that it was an interlocutory injunction and the contempt proceedings were dealt with before the final hearing.  In our submission, Morgan, apart from the fact that it dealt with fines and not incarceration anyway, does not establish any general principle to the effect that gaol is inappropriate except in the case of wilful and contumacious contempts and, indeed, there is no general principle at stake here.  They are our submissions, your Honour.

GUMMOW J:   Thank you.  Just before you start, MrTaylor - Mr Robb, at first instance and in the Court of Appeal you succeeded in getting a costs order, did you not, and you seek one here, do you not?

MR ROBB:   Yes.

GUMMOW J:   Yes, Mr Taylor.

MR TAYLOR:   Your Honours, the complaint in relation to the standard of proof is not simply about paragraphs 65 and 66 alone.  It is when, read with paragraph 2 which describes the only factual question and that it was proved beyond reasonable doubt indicates that there is nothing more that needs to satisfy that standard.  Paragraphs 65 and 66 when it talks about opinion and being satisfied support that interpretation of the way his Honour the trial judge dealt with the matter.

On the other point of the standard, ultimately the question is really whether undertaking a business is a question of fact for the jury, a jury question, or whether it is a question of law.  We submit, as the Court of Appeal found, both Justice Basten at 171 and Justice Tobias at paragraphs 31 and 32, that it is unquestionably a factual question that needed to be proved to the relevant standard.

As to the second point, the second ground, the contravening conduct that is prohibited by the statute and effectively by the orders is not the conduct of advising about securities or dealing in securities.  It is the conduct of undertaking a business to do those things and that is the matter that, in our submission, needed to ‑ ‑ ‑

GUMMOW J:   Lord Diplock had a point, did he not, when he spoke about chameleons?

MR TAYLOR:   Certainly, your Honour, but if that was an element it needed to be faced squarely and dealt with according to the relevant

standard.  We submit that it has not.  Finally, we submit that it is inaccurate to describe this as an astonishing case of recidivism in circumstances where seven years have passed since the offences that led to the imprisonment of the applicant earlier and in circumstances where, on the decision of the primary judge, this did not involve the defiance that characterised those earlier offences.  Therefore, in our submission, it is properly to be described as one where the applicant has misconstrued, carelessly misconstrued the proper ambit of the orders.  Those are my submissions.

GUMMOW J:   The reasons of the primary judge, Justice Barrett, on liability and sentence are not open to the attack the applicant seeks to make upon them and the result in the New South Wales Court of Appeal was correct.  Accordingly, there are no prospects of success in an appeal to this Court.  Special leave is refused with costs.

The Court will adjourn until Monday next, 24 August at 2.15 pm at Canberra.

AT 10.12 AM THE MATTER WAS CONCLUDED