Director of Public Prosecutions (Cth) v JM
[2013] HCATrans 96
[2013] HCATrans 096
IN THE HIGH COURT OF AUSTRALIA
Office of the Registry
Melbourne No M73 of 2012
B e t w e e n -
DIRECTOR OF PUBLIC PROSECUTIONS (CTH)
Applicant
and
JM
Respondent
FRENCH CJ
HAYNE J
CRENNAN J
KIEFEL J
BELL J
GAGELER J
KEANE J
TRANSCRIPT OF PROCEEDINGS
AT CANBERRA ON WEDNESDAY, 8 MAY 2013, AT 10.06 AM
(Continued from 7/5/13)
Copyright in the High Court of Australia
FRENCH CJ: Yes, Mr Moshinsky.
MR MOSHINSKY: If the Court pleases, I want to deal briefly just with some final submissions regarding the original stated questions, and then move on to the construction issue. Could I take the Court please to the decision of this Court in Bass v Permanent Trustee Company (1999) 198 CLR 334? The paragraphs that we would rely on in particular are paragraphs 45, 49 and 56. Paragraph 45 is on page 355, and the joint judgment of six members of this Court reads:
The purpose of a judicial determination has been described in varying ways. But central to those descriptions is the notion that such a determination includes a conclusive or final decision based on a concrete and established or agreed situation which aims to quell a controversy.
Paragraph 49, which my learned friend Mr Holdenson took the Court to, has already been read in part, so I do not wish to read it again, but we would highlight the second sentence:
At best, the answers do no more than declare that the law dictates a particular result when certain facts in the material or pleadings are established.
We would say that that sentence would be applicable to the original questions. Paragraph 56 of the joint judgment, which is quoted by the majority below in their judgment:
Judicial power involves the application of the relevant law to facts as found in proceedings conducted in accordance with the judicial process. And that requires that the parties be given an opportunity to present their evidence and to challenge the evidence led against them. It is contrary to the judicial process and no part of judicial power to effect a determination of rights by applying the law to facts which are neither agreed nor determined by reference to the evidence in the case.
We would submit that those passages provide support for what we would understand to be the longstanding practice that cases are stated on the basis either of agreed facts or found facts, rather than assumed facts. Could I also just indicate that we rely on the judgment of the majority below in this regard at paragraphs – I do not need to take the Court to it but it is paragraphs 291, 292, 297 and 298.
In response to the question your Honour Justice Hayne asked me yesterday afternoon at transcript 83 to 84 as to whether the restated question could be reframed to the effect that if the facts are as alleged by the prosecution, what is the relevant legal signification of the Act? We would say that the point that we make about the inability of facts to be assumed on a case stated would not be addressed by that reformulation. Could I now turn to the appeal, the construction issue, and start with the text of section 1041A? The provision provides that:
A person must not take part in, or carry out –
missing some words –
a transaction that has or is likely to have –
and then missing some words –
the effect of:
(c)creating an artificial price for trading in financial products on a financial market . . .; or
(d) maintaining at a level that is artificial (whether or not it was previously artificial) a price for trading in financial products on a financial market –
The text of the provision and in particular the words “the effect of creating an artificial price” or the “the effect of maintaining at a level that is artificial . . . a price” suggests that an artificial price is an objective matter and does not suggest that the subject intention of one person who entered into the transaction is relevant, let alone sufficient.
Further, the text probably indicates that an artificial price is objectively different from some other price, and one issue the Crown has not really grappled with, in our respectful submission, is what other price is one comparing it with? Could we suggest at this point two possibilities and then return to this in more detail later? One is that the price is artificial compared with the price at which other trades are taking place at or about the same time. Another is that the price is artificial compared with what might be described as the normal market price, and I will return to that and seek to develop that in due course. Could I ask the Court to look at ‑ ‑ ‑
HAYNE J: What is the foundation for saying that “artificial price” necessarily involves comparison?
MR MOSHINSKY: We would infer that from the word “artificial”, that the words “artificial price” indicate that it is artificial as in not natural or not real compared with some other price, or “contrived” is another word that is used in the cases.
HAYNE J: And that is a comparison with something that has actually happened?
MR MOSHINSKY: Not necessarily.
HAYNE J: Is it a comparison with a price determined as market value, as that concept is understood in Spencer v Commonwealth, namely, the result of bargaining between arm’s‑length parties, neither of whom is overanxious, et cetera?
MR MOSHINSKY: It may depend on the circumstances. We would not restrict it to that but it could be in some circumstances that is the comparator.
GAGELER J: There is a lot of anxiety in financial markets that seems to be endemic.
MR MOSHINSKY: Yes.
GAGELER J: It is hard to use Spencer, is it not?
MR MOSHINSKY: Yes, I accept that, your Honour. Could I take up the Crown’s reformulated construction? We have no objection to the amendment of the amended notice of appeal. The gist of it which is consistent with previous versions is to be found about two‑thirds of the way through in the words:
which was or were carried out for the sole or dominant purpose of creating or maintaining a particular price for trading in that share on the ASX –
The thrust of the Crown’s construction is – and this is picking up Soust – is to say that it is enough for the Crown to prove that the subjective purpose – it would appear – of one party to the transaction is to create or maintain a particular price and that is all the Crown has to do to establish that the transaction has the effect of creating an artificial price.
We would make four main points in response to that construction. The first is that no member of the Court of Appeal below accepted that construction. The second point is that the Crown seeks to establish that the transaction has the effect of creating an artificial price merely based on subjective purpose. We submit that this is a confusion of concepts which is not supported at all by the text of the section. The section speaks of “the effect” of the transaction being the creation of an artificial price. What the Crown is seeking to do is to rely on the purpose of a party to the transaction to deem an effect, and it is simply not logical to do so.
The third point is that the Crown’s construction does not require the prosecution to establish that the price of the impugned transaction was any different from any other price, and I will return to what the other comparators may be, but it is clear on their construction they do not see it as necessary for the prosecution to establish a difference between the impugned transaction price and any other price.
The fourth point is that the Crown’s construction would catch transactions where the other party to the transaction is at arm’s length and there is no connivance between the buyer and the seller either as to the volume or as to the price. Those are our principal reasons for submitting that the Crown’s construction should be rejected.
BELL J: Does the offence created by section 1041A have fault elements for the physical elements of the offence?
MR MOSHINSKY: Yes ‑ ‑ ‑
BELL J: If it does, how does that last submission, that the counterparty who is innocent might be convicted of the offence, apply? What I am raising with you, Mr Moshinsky, is let it be accepted that on one side of the transaction, a person enters the transaction, and it may be by reason of the purpose of the other party to the transaction, the effect is to create an artificial price for trading in that security. The innocent party not tainted by that purpose would not be guilty, would they?
MR MOSHINSKY: No, thank you for enabling me to clarify that. My point was not so much the impact that it may have for the innocent party. My point was for the party who has this subjective purpose, and what needs to be satisfied is the transaction has the effect of creating an artificial price. It is, in our submission, very difficult to see how that price can be described as an artificial price when the other party is a willing seller or buyer in the market at arm’s length and there is no connivance between them.
HAYNE J: Willing seller or willing seller at a price which is over the odds? Most sellers are willing to sell if the price is over the odds.
MR MOSHINSKY: I understand that point, your Honour. It would depend on the facts. It may be that there may be factual reasons why that may be the case or not the case. Could I next turn ‑ ‑ ‑
KEANE J: But the point of that is, though, you can analyse the transaction and the part that the accused person plays in it. A person must not take part in a transaction that has a particular effect, and the participation is by bidding at a level that attracts a price that is beyond or outside or above the prices immediately being quoted in the market.
MR MOSHINSKY: Yes, but what we would say factually is that when one looks at these transactions, and I will take the Court to the case stated, there are facts in the case stated that there are arm’s‑length sellers in the market at this price.
KEANE J: But the seller is at arm’s length, and the seller sees a bid ‑ ‑ ‑
MR MOSHINSKY: No, the bids were there already by the sellers, if I could develop that factually in due course. Could I next deal with the legislative history? My learned friend’s main submission was that because section 1041A replaced both section 997 and section 1259, it was to be assumed that Parliament intended that the new offence would cover all of the conduct prohibited by both of those previous offences. We would say in response that the text of 1041A is clearly based on section 1259, and not on section 997, and it is evident from the text. It is also made clear in the explanatory memorandum which my learned friend took the Court to.
When one looks at the text of section 997, or the predecessors to that provision, one can readily see that the offence is quite different. If I could take the Court to the folders of materials, in volume 1 under tab 4 is the Corporations Act 2001 as originally enacted. As enacted, it had both 997 and 998 as well as 1259 and 1260. Section 997 appears at page 1392. Section 997(1) provided:
A person must not enter into or carry out, either directly or indirectly, 2 or more transactions in securities . . . [with] the effect of increasing the price of securities of the body corporate on a stock market, with intention to induce other persons to buy or subscribe for securities of the body corporate or of a related body corporate.
Those last words are similarly repeated in subsections (4) and (7). So the offence provision in section 997 – and the same words appear in the predecessors to that provision in the securities legislation – had a different wording, obviously, but contained a significant additional element, being the intention to induce other persons to buy or subscribe for securities of the body corporate or a related body corporate.
Now, we would submit that it is impossible to see how the different offence that is introduced in 1041A can be read as intended to subsume and cover that previous offence when the wording is so different. But, in any event, the Crown’s construction of 1041A does not reflect the requirements of this previous offence because they are not saying that they need to prove this additional element of an intention to induce other persons to buy or subscribe for securities of the body corporate.
On the subject of the extrinsic materials, we would submit that the legislative history points strongly in favour of the construction adopted by Justices Nettle and Hansen below. In particular – and the Court has already been taken to this – but the explanatory memorandum for the Futures Industry Bill 1986 which brought in the first provision to use the expression “artificial price” and the provision is essentially structured in the same way as the current 1041A, paragraphs 284 and 285 of that explanatory memorandum which is under tab 11 in the folder of materials – I do not need to take the Court to it.
HAYNE J: What page of the document is it?
MR MOSHINSKY: Volume 2, tab 11. Can I just ask – there was a substitution of a version of the EM. If the Court has the original typed EM, it is at page 119. It is paragraphs 284 and 285.
CRENNAN J: Now, why would you provide for cornering in the context of securities when you have a takeover ‑ ‑ ‑
MR MOSHINSKY: Yes, the point that we would make about paragraph 285 and then coming to your Honour’s question is that it is not saying that the only forms of manipulation are squeezing and cornering but merely that the two main forms of manipulation are squeezing and cornering. So in our construction of the section and in the Court of Appeal majority’s construction of the section the type of conduct which is prescribed is not limited to cornering and squeezing.
When one comes to 1041A and the provision deals with financial products, a broader category than futures, it is not necessary for our construction to be able to say that cornering is possible in relation to shares, although we do note in our submissions that some commentators do use the word “cornering” in relation to shares but it is not necessary for our argument to say that that is possible.
BELL J: Accepting that it is not limited to those two forms of conduct, paragraph 285 of the EM speaks of forms of manipulation of futures prices by the manipulation of supply and demand for the physical commodities that are deliverable under the contract. I think the point that is being taken up with you is none of this apposite when one is looking at manipulation of the stock market.
MR MOSHINSKY: The main point that we would seek to address is that the Crown’s construction cannot be correct, that it cannot be correct to say that all the prosecution need to do is prove a subjective purpose and one has the effect of an artificial price. For the purposes of this case we do not need to go any further than that. So we say that the forms of manipulation which can engage the section, both in relation to futures and in relation to shares, are not limited to cornering and squeezing. There are many forms of manipulation which could engage the section but what needs to be shown is that the transaction has the effect of creating an artificial price.
KEANE J: In cornering and squeezing, one party would be trying to effect a corner or a squeeze and the other party will be entirely indifferent to it?
MR MOSHINSKY: Could I take that up when I come to Cargill v Hardin on cornering and squeezing. That may be the case in some cases. I am not sure if it will necessarily be the case, your Honour. In fact, the next thing I want to do is go to Cargill v Hardin so if I could ask the Court to look at Cargill v Hardin (1971) 452 F 2d 1154.
HAYNE J: Again, with a view to demonstrating what proposition? We can all read it for ourselves. What is the proposition you get out of it that is relevant to this case, Mr Moshinsky?
MR MOSHINSKY: Thank you, your Honour. Two points - one is my learned friend relied on this case and my submission in response is that the reliance that my learned friend placed on it is misplaced. The second proposition is that this case indicates very helpfully, in our submission, that when one is talking about the effect of an artificial price that is an objective matter to be determined on evidence. In the case Cargill was charged with manipulating the market price – sorry, your Honour.
HAYNE J: This is another example where the law gets into all manner of difficulty by dividing the whole universe into the subjective and the objective. Artificial price is an objective concept? It may be. For some purposes you can understand it in that way. Why is the subjective intention of one of the parties to it, though, irrelevant to determining whether as a matter of, if you will, objective fact the price thus achieved is artificial? This bleeding between subjective and objective is simply apt to confuse, I suggest, Mr Moshinsky.
MR MOSHINSKY: Your Honour, the point we are seeking to meet is the Crown’s construction that all it has to prove is subjective purpose. I accept that in some circumstances the subjective purpose may be relevant, but our point is that it is not enough for the Crown simply to establish subjective purpose, as in their construction, and ipso facto the transaction has the effect of creating the artificial price.
BELL J: If the price on the market is that that reflects basic forces of supply and demand working in an open, efficient and well‑informed market, why is proof that the dominant purpose of a trade was other than participating in that market in accordance with those laws not sufficient?
MR MOSHINSKY: Can I answer that question by reference to the passage in the case that my learned friend took the Court to? At page 1161 the Court has a section commencing, “The Government’s Theory of the Case” and then on the next page at 1162 starting at about line 4 is a classic description of both “a corner” and “a squeeze” which I will not read out but from about point 2 on the page to about point 5 on the page one has the definitions of “corner” and “squeeze”.
At the bottom of that left column, six lines up, there is a sentence, “However”. From that sentence and then to the top of the right column, the first six lines, the court uses the words “artificially high prices” in the context of a squeeze. That is by way of explanation of the concepts of “corner” and “squeeze”. Can I just, before responding to your Honour Justice Bell’s question, take up the question Justice Keane asked me a little earlier. If one looks at the top of the right column, the third line:
that he can force the shorts to pay his dictated and artificially high prices in order to settle their contracts –
there may be situations where because of the squeeze the party with the long position can force the party in the short position to pay artificially high prices. In that scenario both parties are concerned about it. That would be, I think, a partial answer to your Honour’s question. Over the pay at 1163 at the foot of the left column, the paragraph numbered [1] is the paragraph that my learned friend read out:
We think the test of manipulation must largely be a practical one if the purposes of the Commodity Exchange Act are to be accomplished. The methods and techniques of manipulation are limited only by the ingenuity of man. The aim must be therefore to discover whether conduct has been intentionally engaged in which has resulted in a price which does not reflect basic forces of supply and demand.
Now, could I say two things about that paragraph? We do no say that the type of conduct prescribed by the section is limited to cornering and squeezing, as I have already indicated, and nor does the Court of Appeal majority. So we do not have any difficulty with the second sentence in that paragraph.
As for the last sentence that I read out – and now responding to your Honour Justice Bell’s question – where the Court here is talking about the conduct has resulted in a price which does not reflect basic forces of supply and demand, it is clear when that sentence is read in the context of the judgment as a whole – and I will take the Court to a couple of other passages to make this proposition good – that what the Court is talking about is a price which, when they are talking about a price which does not reflect basic forces of supply and demand, they are talking about an objective fact.
So that Cargill was exacting prices for wheat up here. They are saying the normal price – and I will come to that – would have been down here. Therefore, the price at which they were exacting did not reflect the genuine supply and demand. What they are not saying in the judgment is that the purpose of one party to the transaction would be enough to say that it has the effect of an artificial price.
BELL J: That may be so, but in Fame, Chief Justice Gleeson was looking at a factual situation in employing that same expression and citing Cargill rather closer to the present.
MR MOSHINSKY: Yes. Can I come to Fame separately because I will need to deal with that.
BELL J: Yes.
KIEFEL J: Mr Moshinsky, why do you criticise the DPP for saying – I am sorry. You suggest that they say only that they need to prove purpose, but in the revised answer to amended question 1 which was handed up yesterday, it is said that:
“artificial price” . . . means, for the purpose of the indictment –
in this matter –
a price for a share . . . that has been –
I will leave out for the moment the words “or was likely to have been” because they may be problematical –
that has been . . . created or maintained by a transaction –
and then goes on to discuss purpose. That is the artificial price that has been effected. It is one that is created or maintained by a transaction that has been undertaken. Purpose follows. So they are not saying only that they need to establish subject purpose in this case in the buyer. They are saying that they can point objectively to a price which has been created or maintained, and they then go on to say that it is created or maintained as a result of a transaction entered into buy a buyer whose purpose was to create or maintain. The effect was achieved. As I said, I will leave out the words “or was likely to have been”.
MR MOSHINSKY: I understand that. Your Honour, it was not the way we understood the Crown to be putting its case, and certainly when we come to the case stated – and I will need to go to that – it has never been attempted by the prosecution to prove anything beyond subjective purpose and, as we understand it, they say that is all they have to do.
KIEFEL J: But the case stated identifies the movement in the prices and the price at which it was bought and the effect that it has.
MR MOSHINSKY: I will come to that, your Honour, but the ‑ ‑ ‑
KIEFEL J: I must have completely misread the case stated, then.
MR MOSHINSKY: No, not at all, your Honour. It may be my interpretation of it is different. We understood the Crown’s prosecution to be picking up words in Soust and to be saying that it is enough if they can show purpose. If that is not correct it can be clarified, but we still do not know how they say the effect of an artificial price is established. That is not clear from this.
FRENCH CJ: Mr Moshinsky, we are concerned with the construction of section 1041A. The impression I got looking at the joint judgment was, rather than starting at the text they started at the history. What is the constructional choice that the text itself presents that requires us then to go into the history and import notions of market power and so forth to inform it?
MR MOSHINSKY: In our submission, it is clear on the text that one cannot, merely by showing the subjective purpose of one party to a transaction, say that the transaction has the effect of creating artificial price. There is just a difference of concept there. In a sense, we would say for the purposes of this case in responding to the construction put by the Crown, one probably does not need to go beyond the text.
FRENCH CJ: Why does not one simply say that an artificial price is any price which is not the product of arm’s‑length dealing between willing sellers, but not anxious buyers and so forth? Obviously, there are elements of purpose involved in that, but that is an incident of the nature of the bargaining process. What I am really getting to is why does one need to get into issues of market power and the like which appear to be informing the joint judgment construction?
MR MOSHINSKY: In our submission, it probably is not necessary to go that far. We respectfully adopt and agree with the Court of Appeal majority’s construction, but it is not necessary to go that far. What we say is that the Crown’s construction is not right, for the reasons I have already indicated, and once that construction is rejected it would appear that the prosecution cannot proceed because as we see it that is all they are seeking to prove.
In terms of just responding more directly to your Honour the Chief Justice’s question whether anything that is not the product of arm’s‑length transaction might then be said to be an artificial price, what we would say about that textually is that the words of the section look at the effect of the transaction being the creation of an artificial price. So the focus is on the price being artificial, and that being the effect of the transaction. The focus is not on the nature of the transaction itself, which is of course the textual focus of 1041C.
Can I just point out the paragraphs I wish to indicate from Cargill? At page 1164, there is a heading A, “Did Cargill hold a dominant long position in the future?” That is the first section of analysis of the case against Cargill. On the same page there is a heading B, and then turning to page 1167, there is the heading C, “Did Cargill exact an artificially high price in settlement of its long futures contracts?” This is the crucial element of the government’s case, and the most hotly disputed issue before us. Missing a sentence:
Actually, there are two questions involved here—was the price which Cargill received for its futures contracts artificially high, and if so, did Cargill cause it?
In order to determine whether the price of the future was artificial, some standards or tests must be used to compare normal prices with the prices alleged to be artificial.
CRENNAN J: What was covered by normal prices?
MR MOSHINSKY: That is what proceeds in the following pages is an analysis of trading on the market at different points in time so as to create, essentially, a counterfactual of what the normal prices would have been but for Cargill’s manipulative conduct. The conclusion of that is at the top of 1169 in the right column, third line:
The finding that the futures price was artificially high and did not reflect basic supply and demand factors for cash wheat is supported by the weight of the evidence.
Then, in the next paragraph, the Court goes on to consider:
The question now is whether the artificially high price was caused by Cargill.
So what one sees there, and this is the reference again to basic forces of supply and demand, when the Court uses that expression, they are talking about the objective fact of what the prices were or would have been but for the impugned conduct and evidence is adduced and findings are made about that issue. There is no suggestion at all that the purpose of one of the transactions would be enough.
HAYNE J: Well, there is a close analysis of the evidence that was led in that case. It was close analysis of the way the government in that case sought to make out its allegation. What do we draw from that as a matter of principle?
MR MOSHINSKY: It is really responding to – my learned friend used that sentence “genuine forces of supply and demand” –
HAYNE J: No, no, not what your opponent sought to draw out of it, what you say we should draw from it.
MR MOSHINSKY: We say it is supportive of – the structure of the analysis and the comments I have read out support the analysis that there is a distinction to be drawn between a subjective purpose of a party and whether it has the effect of creating an artificial price. They are two distinct matters.
GAGELER J: So, essentially you are saying, you need to look at what the market price would have been but for the transaction that is impugned?
MR MOSHINSKY: In broad terms, yes, but the difficulty is in identifying market price in that expression because when one comes to individual trades, as in this case, every trade will change the market price – I mean, every trade will be a change to the price, whether there is anything wrong with the trade or not. So, every trade impacts the price. So, one needs to have a conception of the market price which is distinct from the actual transaction itself. So, if one has that qualification to it, I accept the proposition.
GAGELER J: Well, perhaps this is getting to the nub of the case, so far as I am concerned. One of the questions that is asked or was asked by Justice Weinberg that appears at page 925 as question 2, is a question about the closing price on 4 July 2006. The closing price was 35 cents and that was the price that was brought about by the impugned transaction.
As I understand the facts that appear at page 921 to 923, absent that transaction, the closing price would have been either 34 cents if T had stayed out of the market or 34.5 cents if she had gone into the market buying at the lowest price that she could get the shares at. That may or may not be exactly right but that is my understanding of the facts. Now, there you have a counterfactual thrown up by the suggested facts in this case. That is, but for this transaction, what was the market price at close of 35 cents would have been, say, 34 cents. Is that not enough to be an artificial price, even on your submission?
MR MOSHINSKY: We would say, no, it is not. Can I come to the case stated now and make some submissions about it and then return to why we say it is not? I would like to just spend a few minutes developing the points we would make about the case stated to provide a fuller answer to your Honour’s question. If I could ask the Court to look at the case stated which commences at 913, and we would note at the outset – I will not read them – but paragraphs 17, 20, 25, 27 and 28 are facts which provide a description of the workings of the normal trading system during normal hours and the pre‑open auction system which is different. At paragraph 30, the case stated indicates that:
The closing price of securities quoted on the ASX is based on either (a) the price at which the security traded during the CSPA –
That is the closing single price auction referred to in paragraph 25 –
or (b) if no trades occurred during the CSPA, then the last traded price at which the security traded during the Normal Trading phase.
Could I next go to paragraph 48 and after the quotation there is a continuation of the paragraph and just note the last sentence:
I make no findings regarding the claims made by the accused because it is unnecessary to do so for the purpose of resolving the questions of law reserved by this case stated.
As I indicated yesterday, the case stated does not contain facts linking the purpose of the accused to the transaction. Then at paragraph 53, the fact is:
On 4 July 2006 the . . . share price opened at 35.5 cents and traded in a range between 35 and 35.5 cents.
So that is the day of the impugned transaction. The next paragraph:
At 4 pm on 4 July 2006 the last traded price for a . . . share had been 35.5 cents.
So that is the way that trading went on that day and the last traded price at 4.00 pm. Then at paragraph 55 it is indicated that a new ask was entered into the market at 34 cents and at paragraph 56 is the impugned transaction that the daughter made a bid for 50,000 shares at a price of 35 cents. So the price of the impugned transaction was within the range of trading on that day, which is 35 to 35½ cents, and lower than the last traded price at 4 o’clock. That is the impugned transaction here. That is the price which is said to be an artificial price. Then at paragraph 57, second sentence it says:
The BID –
That is the impugned transaction –
had the effect that the BID participated in the CSPA and that the closing price was 35 cents.
Now, the way the CSPA works is that trades do not take place instantaneously as they do during the normal market but there is this closing auction which took place at 4.17 which through the algorithm matches, so that the bid you make or the ask you make may not represent the price that you get or the number that you get. I note 58 and 59 which are the matters to which your Honour Justice Gageler referred about what would have happened but for the transaction. Then, if I could ask the Court to look at paragraph 63:
The transactions that took place on 4 July 2006 took place between buyers and sellers operating at arms’ length and in the absence of any connivance between the buyers and the sellers as to either the price or volume of the transactions.
So that is a fact in the case stated. Then at paragraph 65:
On 5 July 2006 the . . . share price opened at 34.5 cents, traded to a high of 35.5 cents, and a low of 34.5 cents and closed at 35 cents.
One point to note is that the opening price the next morning was different to the closing price the day before, so it cannot be assumed that the impugned transaction is at the same price for the opening price the next day, and the trading on that day – we are given a bit of detail in the rest of that paragraph about the daughter’s involvement but there no comprehensive statement about what happened, but we do know that it traded to a high of 35½, a low of 34½ and closed at 35 cents, the same price as the impugned transaction.
Our submission is that when one looks at the question, did the impugned transaction have the effect of creating an artificial price and one has to ask, well, was the price of 35 cents artificial. When one looks at the range of trading on the same day, when one looks at the closing price at 4 o’clock on the same day and one looks at the range of trading on the next day, it seems very difficult for us to see how one could say that that price is objectively an artificial price.
GAGELER J: But breaking that down, it seems that you accept that the price in the impugned transaction can be the artificial price within the meaning of section 1041A, you do not have to look at the effect on prices in other transactions.
MR MOSHINSKY: It would depend but conceptually it would be possible.
GAGELER J: All right. And you say that the counterfactual analysis that you say is implicit in determining an artificial price is between the price in an actual on‑market transaction and the price that would have occurred if what?
MR MOSHINSKY: The difficulty is one cannot just ask does that transaction have an impact on the price because every transaction has an impact on the price and therefore that would not be enough to tell whether the price is an artificial price. So the only sensible way we see that it can work in this type of scenario is by looking at a broader period of time rather than just the effect of that transaction. So if one were to look at either what is the price for trading in the shares at or about the time of the impugned transaction, one here would look at least at all of the day before and all of the day afterwards and the price is the same as many other prices that are taking place between both arm’s‑length parties.
CRENNAN J: But are not these transactions transactions of a kind about which colloquially it can be said they are supporting the price? That is to say, avoiding the risk with asks in the market at a lower price, avoiding the risk that their ultimate effect will be to lower the price?
MR MOSHINSKY: I am – I do not ‑ ‑ ‑
CRENNAN J: So that concept of supporting the price is relevant, is it not, to the transactions in the context of what you are saying about the spread of prices over time?
MR MOSHINSKY: One might say that every bid supports a price to some extent. The question here is for the offence to be made out the transaction has to have the effect of creating an artificial price. There may be other provisions which are relevant but, for obvious reasons, I do not want to deal with them in too much detail. But the question here is, is an offence able to be established under 1041A simply by showing the subjective purpose?
HAYNE J: Can I take that up with you by reference to a part of paragraph 55 that the case stated at page 920 that you did not read the last sentence before the table on 920:
In the absence of any other market activity the 4:00:02 ASK would transact in the CSPA –
would have occurred at 34 not at 35, is right, is it not?
MR MOSHINSKY: Yes.
HAYNE J: You couple that with the second sentence at paragraph 57:
The BID had the effect that the BID participated in the CSPA and that the closing price was 35 cents.
Those are the two critical elements of those paragraphs, are they not?
MR MOSHINSKY: I agree, your Honour.
HAYNE J: The assertion of the Crown which the defendant denies is that the ask for 34 cents was made with the sole or dominant purpose of supporting the price. Let it be assumed for the purposes of argument that the Crown can prove at trial that that was the sole purpose of the transaction.
MR MOSHINSKY: Of one of the parties.
HAYNE J: Of the person who lodged the ask.
MR MOSHINSKY: The bid.
HAYNE J: The bid, sorry, wrong way around. Why is that not to create an artificial price? What is the answer you give to the allegation of create an artificial price? You say, not enough to prove that, why not?
MR MOSHINSKY: The submission that we make is one needs to have a comparator to look at is the price artificial in the sense that it is different from the other prices that are being traded at the same time or a normal market price. Otherwise, merely showing the subjective purpose is not enough to show that the price is ipso facto artificial. That is our submission, your Honour.
It is a difference between the effect of the transaction needing to be established and we know that the – I mean, I will come to a couple of the cases in a moment, but this is a far cry from the facts in the other cases where one sees a very significant differential between the impugned transaction price and other trading in the market. Here, we have got a price which is the same as other trades on the same day, the same as other trades on the next day, we say is an objective effect, it cannot be said that the price is artificial.
GAGELER J: So it is artificial compared to some notion of a normal trading range. Is that what it comes down to?
MR MOSHINSKY: I think so, your Honour.
GAGELER J: By the way, this may be a question for your opponent, but going to question 3 as posed by Justice Weinberg, how could it be said that the price of shares on 4 July as distinct from at the close on 4 July was maintained at a level that was artificial?
MR MOSHINSKY: I would accept that there is that difficulty implicit in a positive answer to the question.
GAGELER J: Thank you.
MR MOSHINSKY: Can I now deal with some cases that my learned friend relied on which relate to 1041B, or its predecessors? The first of these - I do not need to take the Court back to it as my learned friend took the Court to it - is North v Marra Developments (1981) 148 CLR 42. Our main submission that we would make about this case, and in particular the passage that my learned friend relies on at pages 58 to 59 of Justice Mason’s judgment, is of course that this was dealing with section 70 of the Securities Industry Act, which was the false and misleading appearance provision which is now reflected in 1041B. It was not concerned with 1041A or any of its predecessors.
BELL J: Accepting that, as I understand it, Mr Holdenson submits why would one not consider that there is a degree of overlap between these offences involving market manipulation, and why would the broad statements of principle in North v Marra not have equal application to this provision? This is in a context that the 1041B provision, in a circumstance in which the prosecution has available to it trading falling within subsection (2)(a), or (b) I think it is, has an easy way home.
MR MOSHINSKY: Sorry, is your Honour referring to 1041B?
BELL J: Yes.
MR MOSHINSKY: Yes, I understand.
BELL J: So basically dealing with washed trades and matched orders, if the prosecution establishes that, they have a distinct advantage. So in cases where transactions of that character are involved, 1041B is the obvious route home for the prosecution. That is not to suggest that there is some firm divide between the conduct the subject of 1041A and that the subject of 1041B such that the statements of principle in North v Marra have no application to 1041A, so it would seem.
MR MOSHINSKY: What we would say in response, your Honour, is textually they are quite distinct offence provisions, and when one looks at the text of 1041B, one can see that it is concerned with false and misleading appearance of active trading, or with respect to the market or price. One needs to construe each offence according to its terms, and work out what is proscribed by it. I accept that one may have factual scenarios where an offence under more than one provision is committed. That clearly may occur in some of the cases such as Soust are both 1041A and 1041B cases, but one needs to work to limit what is the scope of the offence. But, one needs to limit what is the scope of the offence and it is in that way that, we say, one needs to look at the text at 1041A and one cannot transpose comments made about 1041B as equally applicable.
BELL J: So that the statements of Justice Mason at 58 and 59 in North v Marra you say are tied into the statutory language as distinct from having some broader application.
MR MOSHINSKY: Yes, that is our submission, your Honour.
BELL J: Yes. All right.
MR MOSHINSKY: Can I then take the Court to Fame Decorator Agencies v Jeffries?
KIEFEL J: Just before you do, can we just go back to the question of the artificiality of the price and your submission that you need to have a comparator and view it over a trading range?
MR MOSHINSKY: Yes.
KIEFEL J: The point about price and either paying the same as the last price traded or paying more than the last price traded, the point of it for the purpose of the section is that, as you have pointed out on a number of occasions, every trade in the market affects the market. So that the section is really recognising, is it not, that if you pay more than the last price traded the effect on the market for whatever short period of time will be to push the price up. If you pay the same, it will be to maintain it.
MR MOSHINSKY: Yes.
KIEFEL J: That is all that the section requires, coupled with the purpose, for it to be an artificial price. The artificial price is because you are manipulating the market by deciding to pay other than a buyer would otherwise pay. It is no more complex than that, is it?
MR MOSHINSKY: We would not accept that, with respect. We would say that the effect of creating an artificial price has to be something that is established distinct from ‑ ‑ ‑
KIEFEL J: The transaction itself?
MR MOSHINSKY: No, no, the purpose.
KIEFEL J: But the section is only concerned with the transaction itself, is it not?
MR MOSHINSKY: I am not sure that it is necessarily that limited but it could encompass that, we accept. But that approach to the price would pick up we think every transaction, because every transaction moves the price.
KIEFEL J: No, it would not because purpose in the section, the necessary intention and purpose, is the thing which sets it apart from the position where there is a takeover involved and the price is necessarily inflated or someone has made an error. All of the things which might have affect their decision on price. There might be reasons that people pay more than they want to pay for particular reasons that they want the shares at a particular time.
MR MOSHINSKY: Yes.
KIEFEL J: But purpose would set it apart.
MR MOSHINSKY: Well, one additional point that I perhaps should have made already is, of course, the section operates as a civil penalty provision as well and needs to have a consistent construction across the criminal and the civil. But I think I have done my best to answer your Honour’s question.
KIEFEL J: Yes.
MR MOSHINSKY: Could I try to supplement my submissions by reference to some of the cases? Fame Decorator Agencies (1998) 28 ACSR 58 is relied on by the Crown. Our main point with this case is that it concerned section 998 of the Corporations Law being the predecessor to 1041B and it was not concerned with 1041A. What one sees in the facts of this case, which my learned friend has already taken the Court to, is an inverse situation here, so here we have got the opposite way round. We have got a seller who is wanting a lower price for the shares because of certain conversion rights. At page 61 at line 15 in the judgment of Chief Justice Gleeson, his Honour noted:
The sole question with which we are concerned is whether Cohen J was right to conclude that the sales of 20,000 Jeffries shares at 14c and 74,000 Jeffries shares at 13c involved contraventions of ss 995 and 998 of the Corporations Law.
So it was only concerned with those two transactions. Then on the next page, 998, the false and misleading appearance provision is set out and then the quotation from North v Marra about section 70 is set out. Then after the quotation is the paragraph beginning “This approach accords” which my learned friend read out. The point we would make about that paragraph is of course his Honour was not construing section 1041A - it was not before the Court – and he cannot be using the words “artificial price” in any technical legal sense. It was not a case concerned with 1041A.
But the other point we would make is in the next paragraph which was read by my learned friend which goes over the page to the top of page 63, one sees that this case and the judgment proceeds on the basis that the impugned transactions had both the purpose and effect of creating what is described as “an artificial market and price”. One sees the words “and effect” or reference to “the effect” in three places: in the third line, “purpose and effect”; in the fifth line at the end, “The effect of Fame’s conduct”; and then at about line 14, “both the purpose and the effect”. So this case proceeds on that factual basis which we submit is not something the Crown seeks to prove here.
HAYNE J: Yes, it does. The Crown proposition as I understand is, one, but for the bid, the closing price would have been 34, not as it became because of the bid, 35. That is the effect if you want effect. Two, the bid was made for the sole purpose of ensuring the price was not less than 35. The Crown elaborate that at the end of the case stated by attributing motives for that. The motive for that was to protect the father’s and indirectly the daughter’s financial interests.
Now, your answer to that, as I understand it, is presently confined to two propositions – correct me if I am wrong. They are: one, purpose or intention, though it may be relevant, is not enough; two, the price must be outside something identified as the “normal range” of dealings. Do I misunderstand your argument or confine it unduly?
MR MOSHINSKY: No, no. With respect, I think that is a fair and better summary of the argument that I could put.
KIEFEL J: And, in this context, is not the price artificial in the sense of the legislation simply because a person intrudes their purchase into the market and therefore interferes with the normal way in which a market operates – either by maintaining or raising the price, and does not allow the market to operate with buyers and sellers operating normally. So the artificiality is the concept of intruding into and upsetting normal market activity.
MR MOSHINSKY: We would submit not, your Honour. We would submit that that is to focus on the transaction and what would need to be established is what is the effect of the transaction? It may have those effects if shown with evidence.
KIEFEL J: But we know what effect it has because as you have said consistently, every transaction in the market has an effect.
MR MOSHINSKY: We use that as a basis for saying that that cannot be the test for whether the price is artificial.
KIEFEL J: But you do not know what the market would have been, in a sense, because you have not allowed it to operate with the next buyer being at the price that the market would have dictated. What you have done by intruding the bid is to prevent that occurring. So you have either maintained or increased and prevented the market operating.
MR MOSHINSKY: Well, it is not clear whether or not it has an impact on the market. We know that it has been trading at the same price, roughly, or higher during the day, so there are other transactions at the same price. We have seen the next day – it is not a price that is different from those. I think that would be our response, your Honour.
Could I take the Court to Justice Priestley’s dissent, because, in our submission, while our primary submission is that this case concerns 1041B and the reasoning is not to be transposed to 1041A, our alternative submission is if one can transpose reasoning on 1041B(2), 1041A, the dissent of Justice Priestley and his reasoning is to be preferred. At about point 3 on the page, His Honour says:
The appellant did nothing in that market beyond selling shares in a way and for prices publicly on offer to any holder of those shares who wished to sell at those prices.
Then going to the next paragraph:
What happened in the market happened because of the market’s own mechanism. The appellant did nothing to that mechanism other than accept offers, made in accordance with market rules, to buy shares in Jeffries at set prices.
So we would say that those same comments would apply to the 4 July transaction. Then over the page, His Honour says:
I do not see how the appellant, doing nothing more than sell shares in accordance with market procedures, without collusion, connivance, prearrangement or even communication with any other person than his agent fell within the words either of ss 995 or 998 of the Corporations Law.
Then at line 10:
what he did was in my opinion lawful and not in breach of either of the two sections relied on against him.
The difficulty in coming to any other conclusion is illustrated by the appellant’s sales of shares for 28c, 26c and 25c. Cohen J held these sales not in breach of the sections. How could the conduct of a seller of shares, “doing nothing more than accept lawful standing offers to buy”, be not prohibited in accepting one offer at 25c and the next moment prohibited in accepting another offer at 13c?
We would say that those remarks are applicable here because when one looks at the facts in the case stated that I have already gone to one sees that we do have, as a fact in the case stated that the other parties to the transactions are at arm’s length and there is no connivance between them and the daughter and they had put in asks at the prices. We would submit - if the other party to the transaction puts in, at arm’s length, a price of an ask and all that the daughter is doing is putting in a bid which then through the mechanism matches with that ask that is already there how can the price, we would submit, be artificial.
BELL J: How does Justice Priestley’s approach in that respect fit with the statements made by Justice Mason in North, quoted at page 62 of the report of Fame in the judgment of the Chief Justice, in particular the second paragraph, speaking of the object of section 70 of the former Act, that it was:
to protect the market for securities against activities which will result in artificial or managed manipulation.
Then his Honour goes on to speak of market forces reflecting “genuine supply and demand”. That does not depend on ‑ ‑ ‑
MR MOSHINSKY: No. Can I say this, your Honour.
BELL J: Yes.
MR MOSHINSKY: In dealing with 1041B there may be some tension between Justice Mason’s remarks and Justice Priestley’s but what we would say is Justice Mason’s remarks need to be read in light of the facts of North v Marra which were quite different to Fame. The facts in Fame provide a very useful basis for considering Justice Priestley’s view and if one is transposing anyway to 1041A and one is looking at the correct construction then one can go directly to Justice Priestley’s dissent and say that is a correct construction.
Can I mention, without going to the case of R v O’Halloran (2001) 182 ALR 431 which my learned friend referred to, a decision of the New South Wales Court of Appeal where Fame is discussed at paragraphs [75] through to [93]. Again, it is a case on 1041B. It is not considering 1041A. Now can I turn to the main case relied on by the Crown in respect of 1041A which is ASIC v Soust (2010) 183 FCR 21. This case concerned civil penalty proceedings under both 1041A and 1041B. At paragraph 6 his Honour indicates that the next section contains his “findings of fact”. Then if I could ask you turn to page 26 there is a description in paragraph 19 of the transaction on 31 December 2007 and the last sentence of paragraph 19 indicates that:
The defendant’s trade was the only trade in Select Vaccines shares on 31 December 2007.
Starting at paragraph 21, there is a heading “Effect of the share trade” and there are some findings made about the effect of the trade:
The defendant’s trade had the following consequences:
(a) the price of Select Vaccines shares increased…25%;
(b) the Select Vaccines share price over the 2007 calendar year –
by virtue of the impugned transactions:
increased by 19.05% -
Then at paragraph 22 - I will not read it out - there is effectively a counterfactual analysis of what would have happened. Going then to the discussion of the construction at page 43, at paragraph 89 his Honour sets out some dictionary definitions of “artificial price” which include something that is:
“constructed, contrived”…“not real” –
Then paragraphs 90 and 91 are the paragraphs that our learned friend relies on. Our submission is that the construction adopted incorrectly treats the comments of Justice Mason in North v Marra as equally applicable to 1041A. The text of the sections is quite different. We would submit that it is wrong as a matter of logic and textual analysis to say that subjective purpose is enough and further his Honour’s construction needs to be read in light of the facts of the case where there were findings about effect which I have indicated.
Our submission about the case is that it was wrong to conclude that purpose is enough to establish effect and that North v Marra is equally applicable. The other point we would make is that the analysis in paragraphs 21 and 22 of his Honour’s judgment is broader than just looking at the impact of the singular transaction. There is a broader range of prices that are looked at and seen as relevant to see the effect of the transaction. Textual support for that approach in 1041A(c) refers to:
creating an artificial price for trading in financial products on a financial market –
suggesting that one is looking at a broader impact than just the impact of the one transaction itself and that being enough.
GAGELER J: Another way of looking at it, it is just the market clearing price which can be in one transaction.
MR MOSHINSKY: That is another way of saying it, yes. The next case that the Crown relies on is – I do not need to go to it – ASIC v AAT (2010) 187 FCR 334. It is a mere following of Soust without any detailed discussion and we would make the same submissions about that case.
Can I now deal just with some miscellaneous matters? I was asked earlier today about the applicability to shares of the construction adopted by the Court of Appeal. Can I just reiterate the comments I made and expand upon them? We are not contending, nor did the majority hold, that the construction was limited to cornering and squeezing and therefore we have no difficulty with seeing conduct relating to shares as engaging the section.
The Crown made a submission that short selling of shares was prohibited and that that therefore stands against the construction below. It does not stand against the construction below because their construction is not limited to cornering and squeezing, but the other point is that it is not accurate to say that short selling of shares was prohibited at the time that 1041A was introduced. We deal with this in footnote 18 of our submissions on the appeal.
In short, at the time when 1041A was introduced, which was 11 March 2002, by the same Act the previous detailed prohibition on short selling which was contained in section 846 of the Corporations Act as introduced was actually repealed and another provision, 1020B, was then introduced as at 11 March 2002 which restricted short selling but did not prohibit it. There were a number of sections which allowed short selling of shares.
Our learned friends referred to a case called In David Henner which was referred to in the McBride text at page 76. That case was not on anyone’s list of authorities. We have not been able to obtain overnight a presentable copy that could be appropriately provided, but can I just indicate this, that the complaint in that case alleged both purpose and effect - it was not a case that merely relied on the purpose – and the decision reveals detailed evidence about other trades and trading ranges. It is certainly not saying that if you have a purpose, that therefore constitutes an effect.
Your Honours, in conclusion, we would note that each of the judges below in the Court of Appeal rejected the Crown’s construction. Each considered that it was not sufficient for the Crown merely to show subjective purpose, which we understand to be really the gist of their construction. We submit it is not logical to rely on a purpose to deem an effect, which is in substance what we see the Crown as seeking to do. For
these reasons, we submit the Crown’s construction should be rejected. If the Court pleases, unless there are any questions, those are our submissions.
FRENCH CJ: Thank you, Mr Moshinsky. Yes, Mr Holdenson.
MR HOLDENSON: Just focusing upon the text of section 1041A, immediately after paragraphs (a) and (b) and prior to paragraphs (c) and (d) is the noun “the effect”. Section 1041A is about the effect of the transaction, and so one looks at this “but for”, in other words, by reference to the language, for example, in paragraph (c) which speaks of:
creating an artificial price for trading in financial products –
It is about what would the price for trading in financial products have been, but for the subject/impugned transaction. There was discussion concerning 4 July 2006. If I could just identify two further passages within the application books which deal with that date. One such passage is within the summary of prosecution opening which is of course the document filed in the Supreme Court, in the first volume of the application book at page 78. In that document at paragraph 210, which is to be found toward the top of that page at page 78, it reads – this is the summary of prosecution opening:
On 4 July 2006 the [G] share price closed at 35 cents as a result of a BID for 50,000 at 35 cents entered at 4:09pm on instructions provided to [W] by [T]. But for that BID the [G] share price would have closed at 34 cents. On that day [P] bought 64,000 [G] shares in a price range of 35 to 35.5 cents.
It is the middle sentence, “But for that”. The evidentiary foundation for that – and there is other material referred to which puts that in context in the subsequent paragraphs, which of course goes to purpose. Another passage I just picked up this morning is in the second volume of the application book where there is set out one of the statements of the expert, Dent, and in a page which has an odd number on it, 755AO, I see at paragraph 466, in the middle of the page:
Pursuant to the ASX Rules, upon conclusion of the Closing match out (assuming no additional “Functions” were entered into SEATS):
a.50,000 GTG shares would trade at a price of 35c and the resultant Bid/Ask Spread –
It is there set out –
b. The effect of Palamine’s Bid would be that it:
i.Acquired 50,000 GTG shares . . .
ii.Caused the last traded price to be 35c (instead of it decreasing to 34c) –
That is the “but for”. That then takes me to the question raised by your Honour Justice Gageler concerning the wording of the third question reserved by his Honour Justice Weinberg at page 925 of the third application book, page 925, questions 1, 2, 3, and the wording of those questions is consistent with, there is no typing error on that page, with what was said by his Honour Justice Weinberg within his ruling at paragraph 82 on page 911, so we are focusing of course on question 3, that was the question your Honour Justice Gageler drew attention to.
Yes, it should have “closing” in it, I am not sure where the word “closing” should be, perhaps it should be as it was in question 2, at the start of the question, “Was the closing price”. On the other hand, it could go in after the word “ASX”, but it may be that the word “closing” was left out because of the word “maintained” in the question, but it should be understood as being referable to the price at the end of the day, closing price.
HAYNE J: Is that right? Are some of the counts ‑ ‑ ‑
MR HOLDENSON: Referable to during the day, yes.
HAYNE J: ‑ ‑ ‑ during the day transactions? Was the case stated not asking about, in effect, matters raised by the counts relating to transactions during the day?
MR HOLDENSON: Well, yes, but that question does have in it the date for July.
HAYNE J: But there were transactions during 4 July.
MR HOLDENSON: Yes, there were.
HAYNE J: And there were transactions at a range, I think, of 34.5 to 35.5, were there not?
MR HOLDENSON: Yes, during the day.
HAYNE J: I would have thought the question was designedly cast in the terms it is, to ask whether the transactions that occurred during the day, at a level above 35 ‑ ‑ ‑
MR HOLDENSON: Yes, that might be the response.
HAYNE J: Whose case is it, Mr Holdenson? Not mine. It is yours.
MR HOLDENSON: No, we will stick with that. I am the last barrister to question the formulation of anything by Justice Weinberg. He would not have made an error. Now, could I revert – sorry, your Honour.
BELL J: I am sorry. Can we just go then to Justice Weinberg’s statement of the case and can you identify the transactions that are the subject of the third question?
MR HOLDENSON: Well, I will have to go to paragraph 52. I am sorry, that is 28 June.
BELL J: Yes.
MR HOLDENSON: I think there is only the one. So Mr Winneke will just look at this so that I do not waste everybody’s time. Just while that is being examined, can I go to a matter your Honour Justice Bell raised at the start of the day in response to some submissions by Mr Moshinsky concerning why it is that one goes to the purpose of one of the parties to a transaction, a buy and a sell, in order to determine whether or not the transaction has had the effect, and I revert to the wording of the section, “of creating an artificial price for trading”.
Within the question your Honour Justice Bell formulated to my friend was the phrase as I noted the phrase, “the innocent party”. Of course, it is necessary to exclude from the transaction the innocent party, that is, the party who did not act for an inappropriate purpose. It would be not right, even though by participating in the transaction as perhaps the seller, that had the effect of there being a transaction which resulted in the creation or the effect of the creation of an artificial price.
The reason for that is actually to be found in my submission in the judgment of his Honour Justice Mason back in North v Marra. Of course, this was also a point taken up subsequently, years later, by Chief Justice Gleeson, in the case of Fame. If I could take your Honours to North v Marra 148 CLR 42, the last few lines of page 58, indeed the last three lines, which read:
Purchases or sales are often made for indirect or collateral motives, in circumstances where the transactions will, to the knowledge of the participants, have an effect on the market for, or the price of, shares. Plainly enough it is not the object of the section to outlaw all such transactions.
It seems to me that the object of the section is to protect the market for securities against activities which will result in artificial or managed manipulation. The section seeks to ensure that the market reflects the forces of genuine supply and demand.
It is subsequently down the page that his Honour Justice Mason excluded non‑genuine purchases and sellers. So when one moves to the word “genuine”, the ordinary meaning of the word genuine – sincere, authentic – one is turning to purpose, and that is why it is not incorrect to have a matter or a statutory phrase “artificial price” being one referable to subjective matters. That is the means by which one gets to it and of course one must, as I said just a moment ago, exclude from all of this those who were participants in the transactions, either buyers or sellers, and they are just doing the best they can.
Returning to perhaps that example of the person who wants to buy the television station, he or she might well know that that will have an effect on the market price of television stations, but for some particular reason really wants the television station. That fits within that sort of – he or she is not committing an offence contrary to section 1041A. He or she does not fall outside the sort of language of Justice Mason. Perhaps turning to the language of Chief Justice Gleeson in Fame’s Case at the foot of page 62:
Markets, in reflecting the interaction of forces of supply and demand, may suffer from a variety of imperfections, including mismatches of information, without such imperfections destroying their integrity. However, the conduct of a seller –
et cetera, is different. Just moving on from shares for a moment and real estate – moving to real estate, for example, there may be that a person is more than prepared to pay over the odds for a piece of real estate. It might be the house where they were born. Now they have got enough money to go back, buy the house where they were born, the small farm where they were brought up. People act for those sorts of purposes and may well pay well over the odds. No problem with section 1041A. I hope Mr Winneke has discovered the answer to the question as to whether or not there were any trades the subject of reference in the case stated for 4 July during the day and hence – the case stated only contains the one trade so we are back to the proposition that we had better put in the word “closing”.
KIEFEL J: Well, just before you do accept that, when you talk of “but for” you are talking about the actual effect of a trade and it is obviously going to be more readily proved by reference to a closing price to see where the market ends. But the section itself speaks in the alternative as to the likely effect that a trade is going to have. I, myself, discounted that before but perhaps too readily. It would seem to enable proof of the possible effect of a price which is intended to create or maintain the market.
MR HOLDENSON: Just one point about that, your Honour just used the word “possible”, if we could just use the word “likely” ‑ ‑ ‑
KIEFEL J: Probable.
MR HOLDENSON: ‑ ‑ ‑ for a moment because I am not sure what the word “likely” means in this context. We know sometimes possible, sometimes ‑ ‑ ‑
KIEFEL J: Quite. It would be a probable effect.
MR HOLDENSON: Yes, and I can just indicate to your Honour just to be ‑ ‑ ‑
KIEFEL J: Well, could I add to that? The section is talking about a probable not an actual effect, so “has or is likely to have”, so it is speaking about something that does not have to actually be seen in the market necessarily.
MR HOLDENSON: That is correct.
KIEFEL J: It is speaking of a market, as I mentioned earlier, that is sensitive to each trade taking place. So if you combine the two it may not be that the section requires proof in the overall market in every case. It is simply the transaction itself at the same price or at a higher price in the case of a buyer with the requisite purpose is sufficient.
MR HOLDENSON: Yes. If I could make two comments to the proposition your Honour has just put to me. I note from the drafting of the charges in the indictment, and I just look at this moment to charge 4 on page 11, I note toward the end of the wording of the charge it reads:
which had or was likely to have the effect of creating an artificial price, or maintaining at a level that is artificial a price for trading in the securities of –
what it was-
on the ASX at Melbourne and elsewhere.
So the charge has been drafted by reference to all possibilities.
KIEFEL J: The words “likely to have” may offer two approaches. One may be that, as a matter of expert opinion evidence, some effect on the market is assessed. The alternative is one of pure construction which has regard to whether or not the section was meant to operate without anything more than the transaction itself operating within the market with the requisite intention.
MR HOLDENSON: Yes, we would agree with that. The other point I wanted to make, and I am duty bound to make it, there is a decision in the Law Reports of Justice Sackville. It is actually footnoted somewhere in the judgment of Chief Justice Warren. It is called Nomura. It is reported in the Australian Law Reports, as I recall, and it was a civil case, of course, in the Federal Court before Justice Sackville. It is reported, as I recall, in 160 ALR and his Honour Justice Sackville construed the word “likely” in the predecessor, which was of course 997 – I think it was – or 998 as meaning “probably” as in “more probable than not”. My recollection of his Honour’s reasoning that it was by reason of the provision operating in the criminal jurisdiction, that is how it should be construed and it should flow through to the civil.
KIEFEL J: In relation to the question of construction, if the object of the Act is, as similarly stated in North v Marra, to protect the integrity of the market, it may be that not much more needs to be shown than the transaction itself with a requisite purpose.
MR HOLDENSON: Yes, your Honour.
FRENCH CJ: Mr Holdenson, just to clear up a matter, I notice in the case stated at 913, paragraph 6, it says:
The questions reserved . . . raise for the consideration of the court the meaning of the term “artificial price” in the context of the facts of this particular prosecution.
Now, I think all the individual counts, apart from the conspiracy counts, relate to transactions in September 2006.
MR HOLDENSON: That is correct, and this case stated is referable for April which can only be within the cover of the conspiracy count.
FRENCH CJ: Conspiracy.
MR HOLDENSON: The first conspiracy count of charge 1, and because the second conspiracy count, charge 41, is down the track in time again; that is correct.
FRENCH CJ: Yes.
MR HOLDENSON: There was some discussion within the transcript of the directions hearings and, indeed, as I recall – I have a note of it ‑ before Justice Weinberg when he was presiding over the matter, concerning the provision of overt acts and so on, and whether or not there was any doubling up anywhere or other with respect to transactions because, of course, charge 1 actually goes from May – it does not just cover April, it goes through to October and thereby catches a number of the transactions which are – I am just looking at pages 10 and 11 ‑ which are certainly mid‑September, 14 to 16 September.
FRENCH CJ: But, the questions 2 and 3 are designed to draw out the constructional issue in a particular transactional context.
MR HOLDENSON: That is correct.
HAYNE J: The maintaining question, question 3, can, I think, best be understood against the background provided by paragraph 53 of the case stated, which refers to the fact that, notes the fact that:
On 4 July 2006 [X Co] opened at 35.5 cents and traded in a range between 35 and 35.5 cents.
The maintaining question is did the transaction after close maintain a price earlier, I think is the explanation or an explanation that may be available.
MR HOLDENSON: That will be the explanation. I did not want to criticise the drafter of the question.
GAGELER J: Well, if that is the question ‑ ‑ ‑
MR HOLDENSON: That will be the explanation for not having the word “closing” there.
GAGELER J: Then what is the answer?
MR HOLDENSON: So the answer is leave it as it is, and the answer to the question is yes – leave the – do not add to the question 3 as formulated on the page 925, and the answer to it is, yes.
GAGELER J: Now, why? What is the mechanism by which the answer is yes?
MR HOLDENSON: Well, when you look at the price as it was earlier on in the day, and it is identified in paragraph 53 there, and I am also just
looking at – it had the effect of ensuring that it remained at 35 cents, that is, it would have been less, and I am just looking for page – I am just going back to Dent at pages 755AN where - I got to AO - in AN, 463, this is the 4.09 pm, at the time, there is the chart there, the resultant, then over the page, and then in 466bii:
Caused the last traded price to be 35 cents (instead of it decreasing to 34c) -
That had the effect of therefore maintaining the earlier price.
GAGELER J: But the earlier price ‑ ‑ ‑
MR HOLDENSON: I am sorry, maintaining a price which was artificial.
GAGELER J: The maintenance of the price was artificial. The earlier price was not artificial, was it?
MR HOLDENSON: It maintained the price and that price having been maintained that price maintained was artificial. It is not to suggest that the price in the first place was artificial. That is how that is to be read. It did not need to be artificial in the first place on those facts for that day in this case but it might be in another case altogether it was artificial to begin with and there is an impugned transaction which had the effect of maintaining that price at that level, it being formerly artificial, it still being artificial, where if it was not maintained it would have reverted to something different, something less and it would only have been artificial until such time as it diverted or dropped out.
GAGELER J: Thank you.
MR HOLDENSON: The decision of Justice Sackville, ASIC v Nomura International (1998) 160 ALR 246 and, indeed, I am just reminded, indeed assisted, that there is an assumption within the statute which is consistent with the answer that I eventually gave to your Honour Justice Gageler. It is in 1041A(d), the final paragraph:
maintaining at a level that is artificial (whether or not it was previously artificial) ‑ ‑ ‑
GAGELER J: Yes, thank you.
MR HOLDENSON: Unless there are any further matters with which I can assist your Honours?
FRENCH CJ: Thank you, Mr Holdenson. The Court will reserve its decision. The Court adjourns until 9.30 on Friday in Sydney and 9.30 on Friday in Melbourne.
AT 11.51 AM THE MATTER WAS ADJOURNED
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