Director of Public Prosecutions (Cth) v JM

[2012] HCATrans 347

[2012] HCATrans 347

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

Application for special leave to appeal

HAYNE J
HEYDON J
BELL J

TRANSCRIPT OF PROCEEDINGS

AT MELBOURNE ON FRIDAY, 14 DECEMBER 2012, AT 10.05 AM

Copyright in the High Court of Australia

MR J.W. RAPKE, QC:   If it please the Court, I appear with my learned friend MR C.J. WINNEKE for the applicant.  (instructed by the Director of Public Prosecutions (Cth))

MR M.K. MOSHINSKY, SC:   If the Court pleases, I appear with my learned friend, MR M.I.BORSKY for the respondent.  (instructed by Clayton Utz)

HAYNE J:   Yes, Mr Rapke.

MR RAPKE:   Your Honours, this application raises an issue of general public importance, namely the meaning to be given to the term “artificial price” in section 1041A of the Corporations Act.  Now, the Commonwealth legislation, of course, the answer that we will be giving to that question will have Australia‑wide significance and will resolve a difference of opinion that presently exists within the Court of Appeal in Victoria and between that court and the Federal Court.

HAYNE J:   Now, is there not a logically prior point of no little importance.  This matter went by case‑stated procedure, is that right?

MR RAPKE:   That is so, your Honour.

HAYNE J:   Majority in the Court of Appeal restated the questions or indicated to the judge stating the questions that they should be restated?

MR RAPKE:   That is so, your Honour, yes.

HAYNE J:   The question as restated was a bare question of what is the meaning of this section, is that right?

MR RAPKE:   The question raised for the determination of the court the meaning of “artificial price” in the section.

HAYNE J:   Yes, shorn of any facts?

MR RAPKE:   Yes.  The Court was of the view that the question ‑ ‑ ‑

HAYNE J:   I understand why it was of that view.  This matter was in federal jurisdiction, is that right?

MR RAPKE:   That is so, your Honour, yes.

HAYNE J:   Section 68 of the Judiciary Act applied?

MR RAPKE:   Yes, your Honour.

HAYNE J:   It picked up so much of the Victorian surrogate Acts as was apposite?  Is that right?

MR RAPKE:   Yes.

HAYNE J:   How can it pick up a case‑stated procedure that would permit determination of what, at least on one view of the matters, is the advisory question, what does this section mean?

MR RAPKE:   Well, the court took the view that it was not an advisory issue, your Honour.

HAYNE J:   I understand that is what the court said.  I read their Honours’ reasons but is that not the first question that would fall for consideration by this Court if leave were to be granted?

MR RAPKE:   Well, that is whether or not it was an advisory opinion which the court gave.

HAYNE J:   Whether the Court of Appeal could consistently, with section 68 and Chapter III give an opinion on the question of construction shorn of facts found, assumed or agreed.

MR RAPKE:   Your Honour raises an issue which, of course, was never agitated by either party in the court ‑ ‑ ‑

HAYNE J:   I understand that well.

MR RAPKE:    ‑ ‑ ‑ nor considered by the court nor considered by us prior to today because it was never a matter that was between the parties.  But your Honour is obviously expressing the view that there may be almost a constitutional impediment to maintaining these ‑ ‑ ‑

HAYNE J:   No, I am asking whether, if this case were to be granted leave, as you urge, whether it would not be necessary for the Court to address that issue before it came to the question as answered by the Court of Appeal.  The difficulty that you face on the application for leave, if I can be quite blunt about it is, you are interrupting criminal process, you are doing it without facts found and raising something which seems to be cast in these general terms, tell us what you know about the construction of this section.  Now, that is not a promising candidate for leave, Mr Rapke, but its lack of promise may, in fact, point to a rather more deep‑seated issue.

MR RAPKE:   Your Honours will appreciate that both parties were encouraged by the trial judge to invoke the new provisions of the Criminal Procedure Act section 302 which, on its face, seemed to sanction this as a course.  Now, your Honour Justice Hayne says it involves a dislocation of criminal procedure, that is perfectly true but that was the statutory foundation of the whole proceedings.  Namely, that in an appropriate case, that dislocation was regarded as necessary or appropriate and, indeed, wise to do, when novel points of law were raised and they might prevent errors being made in the trial. 

Now, as your Honours appreciate, there was a dissent in the defence opinion in the Court of Appeal about the application of the provision and the usefulness of the provision and so on but, nevertheless, it cannot be again said that as a mechanism for determining a novel point of law which would have to arise in the trial, it was appropriate – felt by the parties to be appropriate and deemed by certainly the Chief Justice to be an appropriate use of the State provisions. 

Now, that of course, does not dispose of the section 68 point but the absence of facts, your Honour, we want to say something about that if we may.  First, one has got to give Bass some work to do and in Bass the High Court acknowledged that there can be cases where pure questions of law can be considered in the absence of an underlying factual substratum.  We suggest that this is one of those cases.  Indeed, our learned friends would have it that the Court of Appeal in the absence of those facts, the majority of the Court of Appeal got the question right.  So, the absence of facts, at least from the respondent’s point of view, was an impediment to getting the right answer to the question which was framed. 

Now, of course, what we attack is the answer which was given.  We say it was just plainly wrong.  It is unsupported by a proper statutory construction of the provision.  It is unsupported by an examination of the traditional methods one would apply to statutory interpretation.  You have ended up with a definition which is essentially unworkable in any market outside the futures market.  It seems to be contrary to the stated aims and objects of the new legislation.  It has very limited work to do.  It is, in many respects, if we may say so, it is the perfect vehicle for determination of this question because one is not, in fact, going to be troubled by a factual substratum which may later be distinguished.  It is a pure question of law which stands on its own.  It does not need facts to be determined.  The issue of what does a ‑ ‑ ‑

HAYNE J:   Re Judiciary Act & Navigation Act is a pure question of law, too.    Yes?

MR RAPKE:   There are other examples of which will come to the Court only recently where although there were facts, certainly not agreed facts and full sets of facts, which involved questions that, we would submit, a pure questions of law, and Mansfield and Kizon are examples of that.  The question of what did information mean in not dissimilar provisions, the insider trading provisions?  So, we put to the Court that the absence of agreed facts is not an impediment in this case.  Indeed, we say, that it is illusory to say that there are no facts in this case.  It must be remembered there was, in fact, a case stated. 

Certainly, there was at least one critical fact and we acknowledge that, a critical fact which was absent, namely, the intention with which these transactions were carried out.  But all judges, the majority and the minority, referred to facts in their judgements and all were of the view that the question, in the case of the Chief Justice, the question is posed by the trial judge and in the case of the majority the reframed questions, were capable of being answered without delving into the facts of the case.  Indeed, we say, that was an appropriate approach in this instance.

BELL J:   Mr Rapke, can I just take up one matter with you about the way the parties approached this application below.  I understood from the Chief Justice’s reasons at application book 82, paragraph 26, that the stance taken by the respondent was to contend that it was not appropriate to state a case in circumstances where the facts were disputed and the matter took on a hypothetical complexion.

MR RAPKE:   That was the position taken in the Court of Appeal, yes, that is correct, your Honour.  In fact, I might say that – and I think this emerges from the judgment.  The position of the applicant, the Crown, initially was that the more appropriate mechanism was section 199 of the CPA which is a judge makes a ruling.

BELL J:   The judge might have made a ruling respecting proposed directions and then what is the position?  Is it a matter of whether or not the accused seeks to obtain leave to challenge the correctness of the directions, is that ‑ ‑ ‑

MR RAPKE:   Or one of the other parties could then say ‑ ‑ ‑

BELL J:    ‑ ‑ ‑ so the Crown might equally have done so?

MR RAPKE:   Indeed, there is the interlocutory appeal provisions available in Victoria where a ruling of that nature which would not be critical to the running of the trial could be tested at an early stage, again, it is a dislocation proceedings in one sense but it is provided for in the legislative framework and I think the Court of Appeal – I think the majority said that that would have been the preferable course because at least you have the views of the trial judge.  But it did not go that way, the case was stated.  It ended up being – the question ended up being answered without a factual foundation.  But, as I say, this was a case where that factual foundation was not necessary, nor would it be necessary in this Court for there to be a factual foundation in order to consider the question. 

Your Honours, the conclusions reached by the majority have resulted in a definition which so constrains the effectiveness of 1041A as a mechanism to prevent market manipulation that it requires this Court, in our submission, to look at that definition and see whether or not it is correct.  The importation into Australian legislation of American concepts of jurisprudence might be, as observed in the High Court in Mansfield and Kizon is interesting but the absence of being able to show that this legislation is moulded on American legislation is nothing more than interesting.  The fact of the matter was that 1041A came into the Corporations Act with the intention of combining in the one section the two streams of legislative provisions which existed and were directed to preventing manipulation of futures markets and securities markets. 

Now, what has happened in this case as the result of this majority decision is that the meaning, the definition of both markets, financial markets and financial products, in the Corporations Act has been read down and 1041A has now been given very limited work to do.  In fact, in our submission, for reasons which we set out in our written submissions, would be almost inoperable, the current definition would be “inoperable” in equities markets.  Now, that was not the intention, the stated intention of the legislature at the time it was introduced.  But what has happened is that a body of legislation which was introduced to control trading in markets has now been given a slant which makes its usefulness as a tool in market manipulation extremely limited. 

The market domination test of causation which was propounded by the majority has produced the consequences that these two definitions, the financial market and financial product definitions, no longer carry their defined meanings.  This decision is an example of redrafting of the definition of those terms so it applies to only one product which, quite clearly, the explanatory memorandum is very clear on this.  It was intended to apply to all financial products in all financial markets. 

Now, the concentration of the majority on the concepts, the American concepts of cornering and squeezing, omitted to examine the consequences of that conduct.  In other words, what happened here is that the majority did not actually define what artificial price meant but they rather focussed on the mechanisms by which an artificial price might be brought about without ever delving into the question of what it was about cornering and squeezing which made the price artificial. 

Now, had they done that and had they, for example, examined Cargill which is referred by all the judges, had they examined Cargill carefully, they would have reached the same conclusion as was reached by Justice Dowsett and Justice Goldberg and the other judges who have looked at this issue, that what one is dealing with in this sort of provision is the distortion of normal market forces of supply and demand.  That is what the court said in Cargill and that is what the other judges who looked at this – and that is what the Chief Justice said, with a gloss, admittedly.  But the definition that has now been applied, that it is essentially a market dominance test as opposed to a purposive test means that the stated aim in section – I think it is 760A of the Corporations Act could no longer be met.  If the Court pleases, those are the submissions on behalf of the applicant.

HAYNE J:   Thank you, Mr Rapke.  Yes, Mr Moshinsky.

MR MOSHINSKY:   Your Honour, can I first refer to the advisory opinion issue raised by your Honour the presiding judge.  This is an issue that was front and centre of our submissions both before the primary judge and before the Court of Appeal.

HAYNE J:   By reference to section 68 and Chapter III

MR MOSHINSKY:   It was by reference to federal jurisdiction.  I cannot recall now whether we specifically referenced section 68, but if the Court could turn in application book to page 86 in the judgment of the Chief Justice at paragraph 39, the last three lines:

The accused points out that in this matter the Court is exercising federal jurisdiction and submits that this highlights the need to ensure compliance with the judicial power constraints. 

It was our consistent submission, both before the primary judge and before the Court of Appeal, that the court was exercising federal jurisdiction, all of the learning and principles that apply to the constraints regarding advisory opinions in federal jurisdiction applied.  That is why we submitted that the Court of Appeal should have answered “inappropriate to answer” in relation to all of the questions.  The majority accepted that submission but then directed the primary judge to restate a different question.  When that different question had been floated with us in the course of argument, we had objected to that question as well. 

In our submission, the advisory opinion issue is a live issue with stating and answering a pure question of law in a case such as this divorced from any facts.  Now, I appreciate that that perhaps cuts both ways in terms of special leave application.  We would submit that it makes this case an inappropriate vehicle for this Court to take on the construction issue and, therefore, to grant special leave.

HAYNE J:   That leaves intact the Court of Appeal’s conclusions about the Act which would then bind the trial judge at the trial of the accused.

MR MOSHINSKY:   I accept that, as I said, the issue cuts both ways and I have to accept that, your Honour.  But, for our part, what we would say is because of the advisory opinion issue, it makes it inappropriate vehicle.  The Court would be looking at the construction issue in a factual vacuum.  It makes it an abstract question.  It is not an appropriate vehicle.  It would not be appropriate to interrupt the progress of a criminal matter at this stage.

HEYDON J:   Are you saying you would not seek special leave to cross‑appeal?

MR MOSHINSKY:   No.  If special leave were granted, we would certainly consider and may well seek special leave to cross‑appeal, but absence a grant of special leave we have not sought to seek special leave.

HAYNE J:   I think it is time to nail your colours to the mast, Mr Moshinsky.  If leave were to go, what would the position of the respondent be?

MR MOSHINSKY:   Can your Honour pardon me for one moment?  I think I only need about one minute, your Honour.  Thank you for that time, your Honour.  Yes, we would seek to cross‑appeal in the event that special leave were granted.  The cross‑appeal would be on the basis that the Court of Appeal should not have made the orders that it did on the ground that they amounted to the giving of an advisory opinion. 

Your Honours, I do not think I can say anything more about the advisory opinion issue.  In relation to the construction issue of 1041A, our submission is that the construction adopted by their Honours Justices Nettle and Hansen, was clearly correct.  Could I take your Honours to the application book at page 127.  At the foot of that page, the relevant section 1041A is set out.  I will not read out the whole section but one sees that it refers to a transaction or:

(b)     2 or more transactions that have or are likely to have;

the effect of:

(c)creating an artificial price for trading in financial products and a financial market operated in this jurisdiction; or

(d)maintaining at a level that is artificial . . . a price for trading in financial products on a financial market operated in this jurisdiction. 

In our submission, the legislative history clearly demonstrates that the provision can be traced back to section 130 of the Futures Industry Act 1986. If I could ask your Honours to turn to page 181, in the middle of that page, this is from the judgment of Justices Nettle and Hansen, section 130 is set out. I will not read it out but one sees very readily that structurally and linguistically it is very close to section 1041A. In the next paragraph their Honours set out the passage from the explanatory memorandum that dealt with section 130. Paragraph 284 is at the foot of that page. I will pass over that paragraph and on the next page, paragraph 285 says:

The two main forms of manipulation –

that is, the two main forms that the section was directed at:

are ‘squeezing’ and ‘cornering’ which involve attempts to manipulate futures prices by manipulating supply and demand for the physical commodities are deliverable under futures contracts so that available supply is exceeded and artificial prices are created.

Their Honours Justices Nettle and Hansen, trace the legislative history – sorry, before I get to that, the concepts of “squeezing” and “cornering” were well understood at this time in the context of futures trading in texts and cases in the US.  In paragraphs 324 and 325 their Honours set out key passages from contemporary cases and texts about cornering and squeezing the market.  They were well understood ‑ ‑ ‑

BELL J:   Accepting that and the legislative history traced in the joint reasons, there is, perhaps, some significance in the circumstance that the offence with which we are concerned is one that relates to trading in financial products as distinct from futures.

MR MOSHINSKY:   Yes, that is true and it is a point made by our learned friends that our construction or the construction in the majority works for futures but does not work for shares.  We do not accept that submission.  What the legislature did, when one traces through the legislative path, is when it introduced 1041A it decided to combine the provisions, both dealing with futures and securities, and it adopted as the template the provision from the futures provisions.  It adopted that language.  It did not adopt the language from the previous securities provisions. 

Now, it is perfectly possible, in our submission, to have cornering in the context of securities.  So, if one has, for example, a small mining company and a person sells short in the shares and someone else is able to acquire a number of shares so they can influence the market price and inflate it to artificial levels, then when that person who has sold short needs to deliver on that contract they will need to pay an artificially inflated price.

Now, the wording “cornering” and “squeezing” is used in texts dealing with shares.  In our submissions at page 228 of the application book in footnote 15, we cite a text which discusses “cornering” in relation to shares.  Our learned friends say, well, because of the provisions – this is in their reply submissions, they say because of the provisions of 1020B you cannot do short selling these days.  We submit that that is not an answer.  One needs to look at the position at the time this section was introduced and at that time there were very substantial exceptions to the general prohibition on short selling which meant that there were many circumstances when short selling still could take place.

Your Honours, the competing construction and the construction contended for by the Crown is that in the Soust decision, could I ask your Honours to look at page 173.  At the top of that page quoting from the judgment of Justice Goldberg in Soust, the test or construction that his Honour adopted is set out.  I just need to read a few lines of this to explain the difference between the two constructions.  His Honour said:

Having regard to the context in which the expressions ‘artificial price’ and ‘false or misleading appearance’ appear, I consider that the expression ‘artificial price’ in s 1041A connotes a price created not for the purpose of implementing or consummating a transaction between genuine parties wishing to buy and sell securities, but rather for a purpose unrelated to achieving the outcome of the interplay of genuine market forces of supply and demand.

Then, his Honour goes on to say that he considers the remarks of Justice Mason in North v Marra Developments Ltd 148 CLR 42 to be applicable. The difficulty with that construction may be illustrated by the following example. Let us suppose there is the CEO of a company who is on a performance‑based contract and her remuneration or bonus is linked to the share price being $1 on 30 June. Let us suppose in the days leading up the share price is trading at 93 cents. The CEO decides not bona fide to make an offer to buy shares at $1 on 30 June, hoping to inflate the market price. She does that, but for independent reasons other trades take place which push the market price up to $1 anyway. So, you have on 30 June the transaction involving the CEO for a non‑bona fide purchase but you have unrelated transactions also at $1.

HAYNE J:   I am not sure where examples of this kind take us, Mr Moshinsky.  Surely, we have got to grapple with the Act.  Yes, you can always imagine a set of circumstances which will present a nice intellectual conundrum but the question is, what is an artificial price?  Given that the section deals not only with creating an artificial price but maintaining at a level that is artificial.  Artifice there seems to be, at least an available point of view would suggest that artificially it is not to be confined to one particular form of transaction or subsets of transaction found on a futures market.  Now, you have got to grapple with that.

MR MOSHINSKY:   Yes, I understand that, your Honour.  The difficulty, if I can put it this way, with the Soust construction is it turns on the purpose of one party to the transaction and because one party may have a non‑bona fide purpose, it then treats the price in that transaction as artificial.  That does not gel, in our submission, with the wording of the section which talks about a transaction having the effect or likely effect of either producing or maintaining at a level that is artificial a price.

HAYNE J:   Which rather suggests the difficulties that emerge when you try to determine the application of a provision like this divorced from a particular and identified set of facts.

MR MOSHINSKY:   Yes, we accept that and that is certainly one of the submissions we have made, your Honour.  Your Honours, the other difficulty with the Soust construction as a matter of the legislative history is that in that case his Honour adopted the views of and saw them as applicable of Justice Mason in North v Marra. That case concerned a different provision. It concerned section 70 of the Securities Industry Act which was the precursor which is now 1041B.  This is discussed in some detail in the judgment of Justices Nettle and Hansen below.

Your Honours, the other point that we would mention as to why we submit the construction of the majority below is clearly correct is the statutory context of sections 1041B and 1041C.  Their Honours deal with this at page 186 of the application book in paragraph 334, starting at about line 30 on that page.  In that paragraph, their Honours say:

We do not overlook the possibility that Parliament may have used the term ‘artificial price’ in s 1041A in a sense sufficiently protean to cover both market manipulation of the kind typified by ‘cornering’ and ‘squeezing’ and also one or more of the kinds of false trading, market rigging and artificial setting and maintenance of prices which were once the province of –

the other sections they there refer to.  And it is because their Honours look at that statutory context and what is covered by 1041B and 1041C that they

are confirmed in their view that artificial price and the meaning indicated in the legislative materials that they had referred to earlier.  Your Honours, we would submit that the process of construction adopted by the majority below was orthodox.  Their Honours looked at the text, the statutory context, the legislative history.  For those reasons, we submit their construction is clearly correct.  If the Court pleases, those are our submissions.

HAYNE J:   Yes, Mr Rapke.

MR RAPKE:   No reply, thank you.

HAYNE J:   The Court will adjourn to consider the course it will take.

AT 10.36 AM SHORT ADJOURNMENT

UPON RESUMING AT 10.40 AM:

HAYNE J:   The application for special leave and any application for special leave to cross‑appeal will be referred for consideration by an enlarged Bench and argument as on appeal.  The parties’ attention is drawn to the fact that the timetable for provision of submissions will follow the following course.  The applicant’s submissions are to be filed and served on or before 25 January.  The respondent’s submissions are to be filed and served on or before 15 February.  The applicant’s reply is to be filed and served on or before 1 March.  Subject to anything that counsel may say, it would seem to me at least that if application for special leave to cross‑appeal is to be made, the application for special leave to cross‑appeal should follow the same timetable.  Parties and their lawyers are informed of the fact that the timetable is to be complied with.  Variations will be made only in the most limited circumstances.  Is there anything that counsel wish to say about those directions?

MR MOSHINSKY:   No, your Honour.

HAYNE J:   Very well.

AT 10.42 AM THE MATTER WAS CONCLUDED