Director of Public Prosecutions (Cth) v Gay (No 2)
[2015] TASSC 58
•1 December 2015
[2015] TASSC 58
COURT: SUPREME COURT OF TASMANIA
CITATION: Director of Public Prosecutions (Cth) v Gay (No 2) [2015] TASSC 58
PARTIES: DIRECTOR OF PUBLIC PROSECUTIONS (Cth)
v
GAY, John Eugene
FILE NO: 409/2014
DELIVERED ON: 1 December 2015
DELIVERED AT: Hobart
HEARING DATE: 30 November 2015
JUDGMENT OF: Estcourt J
CATCHWORDS:
Criminal Law – Procedure – Confiscation of proceeds of crime and related matters – Pecuniary penalty and like orders - Crime of insider trading – Proceeds of Crime Act 2002 (Cth) – Application for pecuniary penalty order – Assessment of benefit derived from the commission of the crime – How benefit is to be calculated.
Proceeds of Crime Act 2002 (Cth), ss 116, 122, 124, 126,134, 338.
Commissioner of Australian Federal Police v Fysh (2013) 224 A Crim R 523, considered.
DPP v Mansfield [2006] WASC 246, approved.
Aust Dig Criminal Law [3230]
REPRESENTATION:
Counsel:
Applicant: D G Staehli SC and A J Buckland
Respondent: N J Clelland QC and J S Mereine
Solicitors:
Applicant: Director of Public Prosecutions (Cth)
Respondent: HWL Ebsworth Lawyers
Judgment Number: [2015] TASSC 58
Number of paragraphs: 35
Serial No 58/2015
File No 409/2014
DIRECTOR OF PUBLIC PROSECUTIONS (COMMONWEALTH) v
JOHN EUGENE GAY (No 2)
REASONS FOR JUDGMENT ESTCOURT J
1 December 2015
The background
On 23 August 2013 the respondent, John Eugene Gay, was convicted of insider trading following the disposal by him of 3,404,178 Gunns Ltd ("Gunns") shares between 2 and 10 December 2009.
During that period, whilst the respondent was a director and the chairman of Gunns board, he possessed "inside" or "price sensitive" information that was not available to the market. That information comprised key financial performance indicators contained in the Gunns 2009 October Management report, tabled at a meeting of the Gunns board on 26 November 2009 at which the respondent was present.
The information revealed that sales revenue was 31.1% less than the previous corresponding period, as well as other falls in earnings before interest and tax, and profits before tax, in excess of 100% compared to the corresponding month and year to date periods in 2008.
Between 2 and 7 December 2009 the respondent instructed his broker to sell the shares at a limit of no less than 90c per share. The shares were sold accordingly and the gross proceeds of sale amounted to $3,095,260.06.
The application
On 20 May 2014 the applicant, the Commonwealth Director of Public Prosecutions, filed an originating application seeking an order that the respondent pay the Commonwealth a pecuniary penalty in a sum to be determined by this Court under Div 2 of Pt 2-4 of the Proceeds of Crime Act 2002 (Cth) ("the Act").
The applicant sought a pecuniary penalty to be determined under s 121(3) of the Act in the amount of $3,095,260.06 being that which the applicant claims was the benefit derived by the respondent from the offence for which he was convicted, namely, what is generally known as "insider trading", contrary to ss 1043A(1) and 1311(1) of the Corporations Act 2001 (Cth).
The legislative provisions
The relevant provisions of the Act with respect to the application are as follows:
"116 Making pecuniary penalty orders
(1) A court with *proceeds jurisdiction must make an order requiring a person to pay an amount to the Commonwealth if:
(a) a *proceeds of crime authority applies for the order; and
(b) the court is satisfied of either or both of the following:
(i)the person has been convicted of an *indictable offence, and has derived *benefits from the commission of the offence;
(ii) the person has committed a *serious offence.
…
122 Evidence the court is to consider
(1) In assessing the value of *benefits that a person has derived from the commission of an offence or offences (the illegal activity), the court is to have regard to the evidence before it concerning all or any of the following:
(a) the money, or the value of the property other than money, that, because of the illegal activity, came into the possession or under the control of the person or another person;
(b) the value of any other benefit that, because of the illegal activity, was provided to the person or another person …
…
(d) the value of the person's property before, during and after the illegal activity;
(e) the person's income and expenditure before, during and after the illegal activity.
…
124 Value of benefits derived – serious offences
(1) If:
(a) an application is made for a *pecuniary penalty order against a person in relation to an offence or offences (the illegal activity; and
(b) the offence is a *serious offence, or one or more of the offences are serious offences; and
(c) at the hearing of the application, evidence is given that the value of the *person's property during or after:
(i) the illegal activity;
…
exceeded the value of the person's property before the illegal activity … ;
the court is to treat the value of the *benefits derived by the person from the commission of the illegal activity as being not less than the amount of the greatest excess.
(2) The amount treated as the value of the *benefits under subsection (1) is reduced to the extent (if any) that the court is satisfied that the excess was due to causes unrelated to:
(a) the illegal activity; … or [certain other unlawful activity]
(3) If evidence is given, at the hearing of the application, of the person's expenditure during the period referred to in subsection (5), [a period of 6 years prior to the commencement of proceedings under the Act and since] the amount of the expenditure is presumed, unless the contrary is proved, to be the value of a *benefit that, because of the illegal activity, was provided to the person.
(4) Subsection (3) does not apply to expenditure to the extent that it resulted in acquisition of property that is taken into account under subsection (1).
…
126 Matters that do not reduce the value of benefits
In assessing the value of *benefits that a person has derived from the commission of an offence or offences (the illegal activity), none of the following are to be subtracted:
(a) expenses or outgoings the person incurred in relation to the illegal activity;
(b) the value of any benefits that the person derives as *agent for, or otherwise on behalf of, another person (whether or not the other person receives any of the benefits).
…
134 Proceeds of crime authority may apply for a pecuniary penalty order
(1) A *proceeds of crime authority may apply for a *pecuniary penalty order.
…
338 Dictionary
serious offence means:
(a) an indictable offence punishable by imprisonment for 3 or more years, involving …
...
(iii)unlawful conduct by a person that causes, or is intended to cause, a benefit to the value of at least $10,000 for that person or another person."
The gross proceeds of sale approach to assessment
On 20 April 2015 in Director of Public Prosecutions (Cth) v Gay [2015] TASSC 15, I observed that if the respondent had waited until 22 or 23 February 2010 to sell his shares lawfully he could have disposed of them for approximately $2.5m. The "gross proceeds of sale" approach contended for by the applicant would have resulted in a pecuniary penalty of almost $3.1m which would include that notional $2.5m. I respectfully agreed with the observation of Steyler P in DPP v Mansfield [2007] WASCA 39 at [52] that "manifest injustices of this kind cannot have been intended and, in circumstances in which the relevant provisions are capable of being read consistently with what I have taken to be their evident purpose, it is appropriate that they be read so as to avoid these injustices".
For the reasons I gave in that judgment I found that a number of drug cases and the decision of this Court in Lin v Tasmania [2012] TASCCA 9 were distinguishable on the bases identified by the respondent in written submissions filed on his behalf and set out and accepted by me in my reasons. I held that there was no compulsion to hold otherwise brought about by any need for consistency in the treatment of the notion of acquisition costs incurred in illegal transactions. I said that not all acquisition costs would be expenses or outgoings "incurred in relation to the illegal activity". And I held that the acquisition of the respondent's shares bore no relevant relationship to his later unlawful conduct in selling them with inside knowledge. I held that it would be quite irrational to ignore that fact in order to achieve some consistency in outcome in other contexts, and that the Act could legitimately be applied so as to achieve different results in different contexts.
Whilst acknowledging that the actual decision in Mansfield rejecting the "gross proceeds of sale" approach to assessment of the value of the benefit received from the illegal trading concerned only the applicant's pleadings in that case, I accepted the submission made on behalf of the respondent that the opinion expressed by the Western Australian Court of Appeal as to the proper construction of the relevant statutory provisions was correct. I respectfully adopted that opinion and I applied it in the present case.
Moreover, adopting the words of McCallum J in Commissioner of Australian Federal Police v Fysh (2013) 224 A Crim R 523 at [67], I also said that based on the ordinary usage of the language of the provisions I was considering, I had no difficulty in concluding that the value of the benefit derived from the unlawful sale by the respondent of shares purchased lawfully, must involve bringing into account the cost price of the shares as against the gross proceeds of their sale.
I thus rejected the applicant's submission that the amount of the pecuniary penalty that I must order was the total amount of $3,095,260.06, being the sum for which the shares were sold by the respondent between 2 and 7 December 2009.
The alternative approaches to assessment
The respondent had submitted that besides the "gross proceeds of sale" approach contended for by the applicant, there were two alternative approaches to be considered. They were:
(a) the amount of profit (if any) made by the person, calculated by deducting the cost price of the shares from the price for which the shares were sold; or
(b) the difference between the price that the person achieved on the sale of the shares and that which he would have achieved had the market been fully informed by reason of the inside information being generally available.
The respondent noted that alternative approach (a) is based on the reasoning of McCallum J in Fysh, and alternative approach (b) was adopted by the Western Australian Court of Appeal in Mansfield.
Upon the resumption of the hearing of this application on 30 November 2015, the respondent submitted that "approach (a)" set out above was the correct and only approach to take to the task of assessing the value of any benefit that the respondent had derived from the commission of the offence for which he was convicted. The respondent submitted that, to the contrary, "approach b" was the correct and only approach to adopt.
For the purposes of the present argument the respondent asserts that the adoption of approach (a) results in a conclusion that, conservatively, he sold the subject shares at a loss of $36,586.76. The applicant does not dispute that the result of the sale was a loss.
The applicant asserts that the adoption of approach (b) results in a conclusion that the respondent received a benefit or avoided a loss of between $600,000 and $700,000. There is no agreement as to that assertion on the part of the respondent. The desirability of determining the question of whether approach (a) is or is not the correct and only approach to assessment as a preliminary question is however, immediately apparent.
The respondent's submissions
The respondent relies for his contention on the judgment of McCallum J in Fysh (above).
In that case, Dr Stuart Fysh was found guilty by a jury of two offences of insider trading under ss 1043A(1)(c) and 1311(1)(a) of the Corporations Act (Cth). The charges arose from his purchase in December 2007 of 250,000 shares in Queensland Gas Company Ltd. The shares were later sold by Dr Fysh when the share price was substantially higher. The Commissioner contended that the pecuniary penalty amount should be the whole amount received upon the sale of the shares, being $1,437,500. Dr Fysh contended that the correct assessment was the difference between that sum and the sum of $796,642.82 which he paid for the shares in the first place, giving a net amount of $640,857.18.
At [21]–[24] of her Honour's reasons for judgment in Fysh, McCallum J said:
"21 Based on the ordinary usage of the language of those provisions, I would have little difficulty in concluding that the value of the benefit derived from the sale of shares purchased unlawfully with inside information was the net amount received upon sale of the shares after deducting the original purchase price. In its ordinary meaning, the term 'benefits' means the good or gain received. In the present context, the term may be understood to refer to the amount by which Dr Fysh's financial position had improved at the conclusion of the transaction as a result of his having sold the shares for more than he paid for them. If he had sold the shares for the price for which he bought them (or less), one would readily accept that he derived no 'benefit' from his offending.
22 That conclusion is reinforced by a consideration of the textual context in which the term 'benefit' appears. Sections 115 and 121 both provide that the pecuniary penalty order amount is based on the benefits the person derived from the commission of the offence. The mandatory considerations under s 122 for determining the value of that benefit specifically invite attention to the net position reached as a result of the illegal activity. Section 122(a) requires the court to consider 'the money, or the value of the property other than money, that, because of the illegal activity, came into the possession or under the control of the person' (emphasis added).
23 Subsections 122(d) and (e) focus specifically on the net experience of the illegal activity, requiring the court to have regard to changing levels of property, income and expenditure over the relevant period.
24 Section 124 also adopts a gain or net increase approach … ." (Emphasis added.)
Whilst I respectfully agree with her Honour's analysis of the relevant legislative provisions in Fysh and the outcome on the facts in that case, the last sentence of her Honour's reasons at [21] in which she observed that had Dr Fysh sold the shares for the price for which he bought them (or less), one would readily accept that he derived no "benefit" from his offending, must, I think, be treated with some caution. What her Honour said was obiter it is true, but more importantly, the case before her Honour involved the purchase of shares with inside information as the relevant illegal conduct.
I do not accept that it can be said in the present case that one would readily accept that the respondent derived no benefit from his offending simply because he sold the subject shares for less than he paid for them.
In the present case the respondent sold his shares with the benefit of inside information between 2 and 10 December 2009. Had he waited until after the market had been fully informed by reason of the inside information being generally available and he was lawfully entitled to sell them, one might infer that he would have received something less than he did. The net position reached as a result of the respondent's illegal activity would therefore have been that the respondent would have avoided a greater loss than he in fact suffered.
It matters not however whether I am justified at this stage of these proceedings in inferring that the impact on the market of the price sensitive information would have been that the respondent would have received a lower price for his shares if he had sold at a time when he was legally entitled to do so and the market was fully informed. The very fact that it might be possible that such would have been the case means, in my view, that any inquiry as to benefit must be framed by asking the questions, "what was the price that was in fact received on sale?" and, "what would the sale price have been at that later time?"
A failure to pose that second question in the case of a sale with inside information resulting in a loss will mean that any benefit derived by the offender in the form of avoidance of a greater loss will not be detected and brought to account.
The principal objects of the Act are set out in s 5 and include, relevantly:
"(a) to deprive persons of the proceeds of offences, the instruments of offences and benefits derived from offences, against the laws of the Commonwealth ...
(c) to punish and deter persons from breaching laws of the Commonwealth ... ; and
(d) to prevent the reinvestment of proceeds, instruments [and] benefits ... in further criminal activities ...".
In the second reading speech for the Proceeds of Crime Bill 2002 on 13 March 2002 in the House of Representatives, the Attorney-General explained, amongst other things:
"The need for strong and effective laws for the confiscation of proceeds of crime is self-evident. The purpose of such laws is to discourage and deter crime by reducing profits; to prevent crime by diminishing the capacity of offenders to finance future criminal activities and to remedy the unjust enrichment of criminals who profit at society's expense.... The provisions are all about accounting for unlawful enrichment in civil proceedings, not the imposition of criminal sanctions. The object or focus of the proceeding is the recovery of assets and profits, not putting people in jail." (Emphasis added.)
In my view, the more nuanced approach adopted by the Western Australian Court of Appeal in Mansfield is more consistent with the objects of the Act as explained in terms of remedying unjust or unlawful enrichment.
In Mansfield, Steyler P, with whom McLure and Buss JJA agreed, distinguished a number of drug cases in the following terms at [49]-[50]:
"49 I accept, as did the courts in Nieves, Peterson and Pedersen that the relevant provisions of the Act are concerned with benefits and not with net profits, with the consequence that expenses incurred in the course of committing a crime will not ordinarily be taken into account in assessing the value of the benefit obtained. But the point remains that the assessed value of the benefit (whether it be in the form of property, a service, an advantage or something else) must be no more than what was acquired (or presumed to have been acquired in the absence of proof to the contrary) as a result of the person's involvement in the commission of the offence (in a case falling within s 145(1)(a)). In a case involving the supply of drugs for money, rather than in return for some other property, service, advantage or benefit, the whole of the money will be the benefit derived (if the offender is not merely a conduit, as in Peterson) because the whole of the purchase price will be the benefit that has been derived, or acquired by the offender as a result of involvement in the commission of the transaction giving rise to the offence. However, that will not necessarily be so in cases in which the sale of an item is not absolutely prohibited, but is only prohibited in specified circumstances.In such a case, depending upon the nature of the prohibition, and the effect of its breach, the property, advantage or benefit that is acquired by the offender may be different to, or less than, the sale price.
50 This case provides an example. Mr Mansfield lawfully owned the shares in My Casino Ltd. He was entitled to sell them whenever he chose, thereby converting them into money. What he was not entitled to do was sell the shares at a time when he had inside information as defined in s 1002G(1) of the Corporations Law (now s 1042A of the Corporations Act). His gain arising out of his involvement in the commission of that confiscation offence (if that involvement is proved) was only part of what he received and was constituted by the difference between the price that he achieved on the sale of the shares and that which he would have achieved had the inside information been generally available (a matter which, no doubt, would be the subject of expert evidence). In my opinion, that was the 'property, service, advantage or benefit' that was acquired by Mr Mansfield for the purpose of s 16(1)(c) of the Act and, hence, for that of each of s 18(2)(a), s 19 and s 20. Consequently, if he is able to establish what those differences in price were, and accordingly that the balance of the money was acquired by him otherwise than as a result of his involvement in the confiscation offence, then the assessed value of the benefit will be the total of those differences." (Emphasis added.)
In my decision of 20 April 2015 I accepted and respectfully adopted the analysis of Steyler P in Mansfield, and I rejected the applicant's submission that the legislation under consideration was materially different. In my view, the statutory task that required interpretation and application in Mansfield was relevantly the same as that which exists in the present case.
It was submitted on behalf of the respondent that to adopt an approach to assessing the value of a benefit that a person has derived from the commission of an offence for the purposes of the Act that extends beyond a net loss on sale, and takes into account the avoidance of further loss, is both outside the scope of the notion of unjust or unlawful enrichment, and/or in effect involves an element of double punishment.
I do not accept that submission. On the contrary, to adopt in a case such as the present, as a principled test, a simplistic approach to the notion of enrichment or benefit, such as that articulated by McCallum J in Fysh, would be to lose sight of the fact, or to ignore the possible existence of the fact, that the offender had gained a tangible advantage on the sale of his or her shares that was not one available to persons who did not possess the relevant price sensitive or inside information.
Additionally, it needs to be kept in mind that whilst one of the principal objects of the Act is to both "punish and deter" persons from breaching Commonwealth laws, the harshness of any element of double punishment may be mitigated to the extent that s 132 of the Act permits a court to reduce the penalty amount under a pecuniary penalty order by an amount equal to the amount payable by the person by way of any fine in relation to the offence to which the order relates.
Conclusion
I conclude that the assessment of the value of any benefit derived by the respondent from the crime of insider trading committed by him following his disposal of 3,404,178 Gunns shares between 2 and 10 December 2009, is to be assessed in an amount equal to the difference between the price that he achieved on the sale of the shares, namely $3,095,260.06, and the price that he would have achieved at the earliest time that he was lawfully able to dispose of those shares, and the market had been fully informed by reason of the inside or price sensitive information being generally available
That amount will need to be assessed in default of any agreement as to its quantum by reference to expert opinion evidence. This application is now one most suitable for alternative dispute resolution, and I propose to make an order referring the matter to mediation pursuant s 5 of the Alternative Dispute Resolution Act 2001.
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