Mansfield v The Queen & Anor; Kizon v The Queen & Anor
[2012] HCATrans 102
[2012] HCATrans 102
IN THE HIGH COURT OF AUSTRALIA
Office of the Registry
Perth No P60 of 2011
B e t w e e n -
NIGEL CUNNINGHAM SWIFT MANSFIELD
Appellant
and
THE QUEEN
First Respondent
JOHN KIZON
Second Respondent
Office of the Registry
Perth No P61 of 2011
B e t w e e n -
JOHN KIZON
Appellant
and
THE QUEEN
First Respondent
NIGEL CUNNINGHAM SWIFT MANSFIELD
Second Respondent
HAYNE J
HEYDON J
CRENNAN J
KIEFEL J
BELL J
TRANSCRIPT OF PROCEEDINGS
AT CANBERRA ON WEDNESDAY, 9 MAY 2012, AT 10.17 AM
Copyright in the High Court of Australia
____________________
MR M.L. BENNETT: If it please the Court, with my friend, MS L. RISTIVOJEVIC, I appear for the appellant in P60 and for the second respondent in P61. (instructed by Bennett + Co)
MR S.A. SHIRREFS, SC: If the Court pleases, I appear with my learned junior, MR S.P. GIFFORD, for the appellant in P61 and for the second respondent in P60. (instructed by Holborn Lenhoff Massey)
MR W.B. ZICHY‑WOINARSKI, QC: If your Honours please, I appear with my learned friend, MS R.V.C. FOGLIANI, in both matters on behalf of the first respondent and, your Honours, can I say I do not require the Zichy‑Woinarski; Woinarski is more than sufficient? (instructed by Commonwealth Director of Public Prosecutions)
HAYNE J: Thank you. Yes, Mr Bennett.
MR BENNETT: Can I take your Honours to the central point that occupies both appeals, which is the meaning of the word “information” where it appears in the insider trading provisions and relevantly, there being no distinction between the pre‑11 March 2002 statute and the preceding statute, 1043A would be the section that I take your Honours to. Your Honours know that the policy rationales that underlie the introduction of insider trading provisions into Australia were analysed by the Court of Criminal Appeal in R v Firns which your Honours find relevantly in volume 2 of the two volume book of legislation, authorities and relevant material that the parties have prepared, the authorised report for which is (2001) 51 NSWLR 548, and the reasons for decision of President Mason at page 557, your Honours find that at page 458 of the bundle, commencing at 457. The Griffiths Report which ‑ ‑ ‑
HEYDON J: I am very laudatory about this brisk approach, but you have just gone a bit fast for me. You have just given two ‑ ‑ ‑
MR BENNETT: If your Honours turn up volume 2, page 457.
HEYDON J: I have that.
MR BENNETT: Your Honours see at paragraph 43, his Honour identifies and draws from the Griffiths Report the four policy rationales that underlie the introduction of insider trading or that are advocated as a basis for the control of insider trading: fairness, that is, as equal access to information between market participants; fiduciary duty, which your Honours will know as the underpinning notion in the United States jurisdiction; economic efficiency, that is damage to the market itself; and corporate injury.
His Honour identifies that the explanatory memorandum, paragraph 49 on page 458, picks up both the unfairness and the market efficiency approach. I pause to say that in the court below when his Honour Appeal Justice Buss deals with this matter – and your Honours find this in volume 9 of the appeal book at page 2871, paragraph 49 – his Honour drops out corporate injury as a policy rationale and introduces misappropriation of information in lieu of corporate injury, misappropriation of information being entirely analogous to the fiduciary duty point.
Can I say that when one tracks through the Corporations Act one sees these policy rationales exhibited in different ways? Your Honours know that information is dealt with in the director and officer duties in section 183 which provides the civil liability for misuse of information by a director or officer, and section 184(3) which provides criminal consequences for dishonest use of information by a director and officer. We would submit, your Honours, that is plainly an embodiment of the fiduciary duty misappropriation theory in that context.
HAYNE J: Be it so, how does that bear on the problem that we now have?
MR BENNETT: Consistency of treatment of the concept of information within the statute as a whole is what we would submit, your Honours. If I can just develop that by going to the next aspect by which the Corporations Act deals with information. Your Honours know that to be the control of dissemination of information by listed authorities which is picked up in section 674. I should import as an aside to mention that I note that your Honours had occasion to consider the concept of a listed corporation having an obligation to disclose information when it becomes aware of information when your Honours, in March of this year, heard P44 and P45 of 2011, the Forrest and Fortescue v ASIC matters. Your Honours looked at the question of whether that information is subjective or objective and had some debate about ‑ ‑ ‑
HAYNE J: But here we have a Division in which “information” is specially defined. What are we gaining by looking at other and different uses of the word elsewhere in the Act?
MR BENNETT: Your Honour is right that it is specially defined, but it is specially defined, we would submit, to extend its ordinary meaning and not to give it a specialised meaning for Part 7.10, Division 3. In the context of the Act as a whole, one starts with analysing the ordinary meaning of “information”, which we take not to be in contention having read my friend’s submissions and outline that the ordinary meaning should be adopted, and that includes, we would say, as defined to mean knowledge of facts or factual knowledge imparted by somebody, and it is extended by the extended definitions of suppositions that are, in other matters, insufficiently definite to extend to the reasoning process of the recipient of factual knowledge who then makes suppositions based upon that factual knowledge that is conveyed.
This case raises a paradigm consideration where the material conveyed and the particulars relied upon by the Crown at the trial were complete falsehoods.
CRENNAN J: Why cannot a supposition arise otherwise than being based on factual information?
MR BENNETT: Firstly, because the concept of a ‑ ‑ ‑
CRENNAN J: What about a rumour? There are all sorts of ways in which a person may suppose something may happen?
MR BENNETT: There are at least two answers to what your Honour poses. The first, if I can just identify it and then turn to the substantive answer, is to say that the issue of supposition does not arise in this case. The Crown never contended that there was a supposition. They never sought to rely upon a supposition. They gave particulars which identified sharply alleged matters of factual knowledge. Packers bought 4.9 per cent of AdultShop. That is not a supposition, that is a fact that was put.
HAYNE J: You say it has to be true before the provisions bite? Why?
MR BENNETT: Yes, otherwise it does not constitute information. It constitutes a lie.
HAYNE J: Be it so, why should not this division be read as a whole and catching, among others, those who trade on the basis of lies which may have been peddled as part of a market manipulation?
MR BENNETT: Three reasons, we would contend, your Honour. The first is to say that a lie cannot constitute information. It is a fiction, not a fact. The second is to say that one reads Division 3 of part 7.10 in conjunction with Division 2 where the Act specifically proscribes the conduct of disseminating false information to a market. It attacks the wrongdoer, being the disseminator of the false information, and it conveys a civil damages remedy for the victim and that is inconsistent.
KIEFEL J: But an important relevant quality of the information as defined in the definition of “inside information” is that, were it generally available, it might be expected by a reasonable person to have a material effect. It is the effect of the dissemination of the information that gives it the particular quality and which may be seen to have the disruptive effects upon trading and the proper price at which shares are traded. The notion of the effect that the information may have appears to be fairly consistent amongst the various overseas – the European approaches to inside information as well. Once you have considerations of the effect of the information brought into play, the truthfulness or the falsity of the information becomes less relevant, does it not?
MR BENNETT: With respect, no, your Honour. The starting point is to break down the elements of the offence. There are five elements. The first is that there has to be information. The second is that it has to be information that is not generally available. The third is that it has to be information that, if it were available, would have a material effect in the manner statutorily defined on the price or the intention of a person who commonly trades in the securities. The wrongdoer then has to know that it is not generally available and know that it would have a material effect. They are the five separate elements. Logically, the first of the elements is to decide whether you are dealing with information before you get to the effect, which is the materiality issue.
KIEFEL J: Well, perhaps, it should not be broken down. Why does it have to be broken down into a step‑by‑step approach? Why should not inside information be understood in the way in which it is defined, which is, to take account of its effect? To read it as a whole, as Justice Hayne said, to read the division as a whole and determine what its purposes are.
MR BENNETT: Because it is important in the particular nature of this prohibition, being a criminal sanction within the Act, to identify the constituent elements that give rise to the offence from the wording of the statue and to separate them out, as the Court has done in R v Firns and Rivkin and other cases, to analyse the ingredients of the offence as element, each of which needs to proved beyond reasonable doubt by the Crown. So the Crown has to negative that it is not generally available, has to negative or prove that it has a material effect.
So the element, the onus that lies upon the prosecution in a criminal offence, the starting point, and we say logically the first point is to analyse what is meant by the concept of “information”. If you come back to the issue of why would not you read it separately to include lies, the starting point is, as the second point I was saying is, you read it in conjunction with the legislative scheme that punishes the person who disseminates a false information and conveys a statutory remedy, a civil remedy of damages for the victim, which is inconsistent with the same person who seeks damages under Division 2 of Part 7.10, then being liable for a criminal offence in Division 3. It is a legislative inconsistency that points to a proper construction that information, when dealt with in Division 3, must be a factual reality. It has to exist. If a taxi driver tells me something about a securities in a drive to this Court, it has to exist before it can constitute information otherwise it is a fiction. The ordinary meaning of the word “information” is to convey knowledge of a fact.
CRENNAN J: But the market may be sensitive to a disseminated fiction.
MR BENNETT: I agree, which is why the legislation makes it an offence to disseminate false information as part of the market reading market manipulation dissemination of false information. The market is sensitive to lies and they should be attacked and the legislature identifies who should be attacked and that is the person who disseminates the false information.
HAYNE J: And when the false information is not disseminated to the market but is disseminated to someone who may be innocent or unknowing of the untruth of what is disseminated, why should that person not be within the insider trading information if they know that they have got sensitive information and yet trade on it?
MR BENNETT: That gets to the third of the answers that I said was to your Honour’s point and that is, if one goes back to the policy rationales, there is no market unfairness other than for the victim of the victim relying upon false information unwittingly being duped. They are the person who suffers the loss because they are ignorant of the true facts and they are misled. That is why the legislature gives them a civil right of damages in Division 2 of Part 7.10. There is no market efficiency issue arising from that trading. The market efficiency issue lies in the dissemination of the false information which is why it is an offence to disseminate false information. So the policy rationales that underlie the introduction of the insider trading provisions are not embodied in a prosecution against a victim of a false statement, a deliberately false statement. As her Honour the learned President McLure said in the court below, in this case there are elements of fraudulent misrepresentation made by Day who had his obvious motive of pumping the stock of AdultShop in this regard.
HAYNE J: Exactly, pumping the stock, affecting the market.
MR BENNETT: Entirely.
HAYNE J: Beyond Kizon and Mansfield.
MR BENNETT: We would infer that, yes, your Honour. But to go around and say of your online adult entertainment industry that Packer has bought 4.9 per cent is plainly calculated to excite interest in the market. But to excite interest in the market on the base of a falsity would be an offence by Day, not an offence by Kizon or Mansfield in relying upon what is falsely said to them to induce trading; a feature of this being that Day never gave evidence in the court below in the original trial and does not appear to have been charged with any offence at any stage.
Can I go back then and just show your Honour some of Part 2 of Division 7.10 in volume 1 of the papers. You pick this up at page 41. Your Honours, Division 10 has as its heading “Market misconduct and other prohibited conduct relating to financial products and financial services”. Can I pause there to say that we do not, for Mansfield, see any significance in the change in the legislation in 2002 to broaden the scope of insider trading to financial products as opposed to securities as such and we do not see, relevantly, from my friend, Mr Woinarski’s, submission any identification of a change in principle. My friend submits that this adds force to the fact that information is used in its ordinary sense and we would agree. We would say that there is nothing in the fact that the financial product range broadened by that.
Your Honours see that the offences that are created by Division 2 include market manipulation, false trading and market rigging, but if your Honours move to 1041E your Honours see that there is an offence of a person making statements or providing information that is “false in a material particular”. Then, your Honours, 1041G is for dishonest conduct. Your Honours see in 1041H a civil liability in terms that your Honours would be familiar with, misleading or deceptive, and your Honours in 1041I on page 49 of the bundle a civil action for loss or damage by reason of contravention of 1041E to 1041H, so that a person, such as Mansfield, who suffers loss or damage by reason of the conduct of Day, can recover damages against him.
We would say that the juxtaposition of that civil right of damages with the contention that in the next division a liability is created for part of Mansfield for the self‑same conduct, that is relying upon the misleading and deceptive conduct, suggests an incongruity that the legislature did not intend, that is that a person who trades on the basis of false information could be liable for insider trading. Can I go back to your Honour Justice Kiefel’s point and say that when one looks at the separate definition of “information” in 1042A on page 51, as opposed to the definition of “inside information”, one sees the splitting of these elements of the offence, and one sees that picked up 1042C.
KIEFEL J: Is not the prohibited conduct in relation to “inside information”?
MR BENNETT: Yes, but you have to have “information” before ‑ ‑ ‑
KIEFEL J: So, would not the elements of the offence therefore be whether the person possesses “inside information”, not just “information”?
MR BENNETT: I agree entirely.
KIEFEL J: That brings in the definition of “inside information” and the materiality of the effect.
MR BENNETT: But inside information itself incorporates the definition of information because it means information ‑ ‑ ‑
KIEFEL J: But you do not hive off information as if it has no context. Inside information is a defined term which takes up the purposes of the legislation.
MR BENNETT: The difficulty with your Honour’s proposition is then when one confronts 1042G and 1042H where you have the concept introduced into the division of the possession of information, not the possession of inside information, but the possession of information. It raises the question that my friend needs to confront as to how do you possess something that is a fiction? So, how would a body corporate be taken to possess information that is false which a officer of the body corporate possesses which came into his or her possession? How does one come into possession of a falsity, a fiction?
You see that in 1042G(1)(a), for example, or you see that in respect of a partnership or an employee of a partnership in 1042H(1)(a)(i). The legislature then draws back from the phrase “inside information”, concentrates again on the concept of information and then if you go to 1043A(1) to see the first of the offences, the trading offence rather than the procuring or communication offence, one sees in (a) the first of the elements:
a person (the insider) possesses inside information –
the insider then knows that the matters are satisfied, that is materiality, they must not acquire financial products or procure. Then subsection (2) is the tipping offence. So one sees the nature of how it has developed in that sense into the various elements. We would say then that one is driven back to the definition of “information” in 1042A when you confront, as your Honour Justice Crennan raised, the fact that it is an inclusive definition that includes matters of supposition and other matters insufficiently definite to warrant being made known to the public, matters relating to intention.
Can we say that you need to, in this case, focus particularly on the way in which the Crown ran its case both in a pleaded sense on the indictments and the particulars for the indictments and in the conduct of the trial before his Honour Judge Wisbey in the District Court of Western Australia. This in contradistinction to the Rivkin particulars. Mr McGowan said that Impulse was to be the subject of a merger with Qantas where the identification was of the statement made by a person, and your Honours will know that in the Court of Appeal the challenge that was run was that the statement made by a person could not be information. It had to be the underlying truth of the proposition. The proposition was rejected in the Court of Appeal in The Queen v Rivkin.
Here the particulars that were run were precise facts. Can I demonstrate that and show your Honours, firstly, by taking you to volume 1 of the appeal books? Your Honours pick up the indictments at page 2 of the bundle, and your Honours see that count 1 of these multiple counts against both Kizon and Mansfield was a conspiracy charge, that they:
conspired . . . to commit an offence contrary to . . . the Corporations Act 2001 . . . by procuring the purchase of shares in AdultShop.com Limited –
Then at page 30, your Honours will see that the Crown delivered particulars in relation to this, and your Honours see on page 31 the particulars that are given for count 1, and I use that as an exemplar for a reason. The information comprises the:
possessed was to the effect that:
a.The expected profit for AdultShop for the 2002 financial year had risen from $3 million to $11 million;
b.The expected turnover . . . had risen from between $30 million and $50 million, to about $111 million;
c.The information at sub‑paragraphs a. and b. above had been obtained on or about 4 January 2002 as a result of private conversation . . . and a person or persons the said Malcolm Day apparently treated as a confidant.
Now, your Honours need to pick up volume 2 of the appeal books to see how this was then – sorry, stay with volume 1, I apologise, your Honours ‑ and go to page 176 which was the opening by Mr Champion of Senior Counsel who appeared together with Mr Woinarski at the trial on 22 January 2010, and your Honours pick up between lines 30 and 40 in the paragraph beginning:
If we look at the particulars, and we go back now to the very beginning, count 1, you can see how we put the case, that this is the information that is conveyed by looking in particular at count 1, that, firstly, (a) the expected profit . . . secondly, the expected turnover . . .
We set out in the particulars in the same way that we set out with the My Casino allegations that the information at paragraphs (a) and (b) had been obtained on or about 4 January as a result of a private conversation ‑
The way in which Mr Champion opened for the jury was to skip over AdultShop and deal with the opening in two distinct parts – the second tranche of indictments related to trading in the securities for a company called My Casino, and that does not concern your Honours here. You then move across to page 179 of the bundle and in the same speech to the jury Mr Champion says at about line 25:
We allege that while the accused men were in possession of the information that we discussed with you just before lunch, the two particulars (a) and (b), that that information was to the knowledge of both men material and not generally available.
So, the central tenor of the opening was to concentrate on (a) and (b), and one picks that up again at page 183 of the same book which is the conversation. Then the matter came up again two months later prior to the no case to answer submission being made, and your Honours pick up volume 2.
HAYNE J: Can I just understand, where are we driving to? What is the point that you are trying to illustrate?
MR BENNETT: That this is an instance where the Crown’s case was pleaded with particularity. The pleading is critical. The pleading was not of statements being made, but of asserted facts. Those facts were demonstrably false. We draw a distinction ‑ ‑ ‑
HAYNE J: Yes. I think we have that point. We understand that point.
MR BENNETT: The distinction we draw, your Honours, is had the Crown case been “Mr Day said these words”, the making of the statement, we would accept, is a fact, even if the content of the statement were a falsity. It is akin to the leading hearsay evidence. It is the making of the statement that one proves rather than the truth of the statement. But the pleading and the way in which the Crown ran its case is of critical importance because here, separated out from the making of the statement, was the isolated piece of alleged factual knowledge which is false.
HAYNE J: This comes back to your basic point, that information is true information?
MR BENNETT: That has to be separately ‑ ‑ ‑
HAYNE J: Is there anything more to it than that?
MR BENNETT: No, but one needs to deal with it because it is conflated, in my friend’s submission, with the making of the statement. The source was specifically disclaimed by my friend to the judge as being part of the information. You will see that at page 517 of volume 2 where my friend says, dealing with this same count, at line 26:
Now, the particulars that are provided in relation to that is (a) the expected profit . . . had risen . . . and the expected turnover . . . Paragraph (c) is not particulars of the information at all. Paragraph (c) just particularises where the Crown alleges the information had come from. But it’s (a) and (b) that’s the information.
You read further on that at line 40 on page 518, and line 16 on page 518A.
HEYDON J: Did you say 518A?
MR BENNETT: Page 518A?
HEYDON J: I do not seem to have that. It could be some deficiency on my part.
MR BENNETT: I am sorry, your Honour.
HEYDON J: No need to bother, Mr Bennett, it is all right.
MR BENNETT: It was an insert. If I can just tell your Honour what Mr Woinarski said to his Honour, “Now that is the way we propose to put it to the jury, your Honour. In our submission, it makes it very clear to our learned friends exactly how we are putting it, and it is consistent with what we said the other day.” It was an adoption of that as to the way in which it was to be put to the jury. I raise that because my friend, in his submissions, says, “No, I was only dealing then with an argument on a voir dire as to the adequacy of the particulars for the conspiracy plea, whether they were duplicitous, whether one read the (a), (b), (c), (d), (e), (f), (g) and some of the particulars as disjunctive or conjunctive.”
Can I pick up what your Honour Justice Kiefel raised about the international legislation which we raise, and your Honours will know that the Griffiths Report highlighted 13 years ago the importance of Australian regulatory framework being viewed in the context of the international regulatory framework. What was apposite 13 years ago is even more apposite today in terms of the globalisation of securities markets worldwide.
But your Honours will see from an analysis of the legislation that, barring Canada and New Zealand which appear again to rely upon an ordinary meaning of the word “information”, the European Union states, and England in particular, define “information” as a precise set of circumstances and facts and, we would say, in a manner that is inconsistent with a concept of a falsity constituting information. We say it is important in the construction of our legislation and, bearing in mind the intention of the legislature reflected in the report that gave rise to the 1991 Corporations Amendment Act, would be to see a consistency in ‑ ‑ ‑
KIEFEL J: I had actually had in mind examples given in volume 2, pages 86, 88 and 90 of the definition of “inside information” which, for Germany, France and Spain at least, define “inside information”, amongst other things, to refer to the effect that it may have upon the market.
MR BENNETT: Yes.
KIEFEL J: A significant effect on the market price of the insider security I think is the term often used.
MR BENNETT: But the European Union, being signatories to the European directive and the ‑ ‑ ‑
KIEFEL J: Yes, but I think what you are talking about in terms of European directives are information for the purposes of other offences, as you have in relation to this legislation where information sometimes needs to convey other things for other offences.
MR BENNETT: Yes. The point that I was drawing from there is, if one dealt with the Financial Services and Markets Act 2000 in the United Kingdom, the relevant section of which is reproduced at page 83 of volume 1 of the papers, the inside information is information of a precise nature and the precise nature is defined in subsection 118C(5) on page 84:
Information is precise if it‑
(a)indicates circumstances that exist or may reasonably be expected to come into existence or an event that has occurred or may reasonably be expected to occur –
a definition of “information” that is wholly inconsistent with a fiction, because it has to be a circumstance that exists or an event that occurs. Now, I qualify that to say it may, and we do not argue this, but it may extend to the making of a statement in that distinction that I raised earlier with your Honours between the fact of making a statement even though the content of the statement conveys a falsity, but the English model is only consistent with the appellant’s construction of 1042.
KIEFEL J: But neither it nor the European directive is concerned with whether or not the information is factually true. It is concerned with the precision of information which may indicate that something could occur. It is not concerned with ambiguous information, the precision of information. It does not say anything about its falsity or truthfulness.
MR BENNETT: We would say that it presupposes factual reality, to adopt the trial judge’s phrase or to adopt what her Honour Appeal Justice McLure said, that it actually exists.
KIEFEL J: The precision of information indicates a quality which, when conveyed, may impact upon someone and cause them to think things about market price. You have to read it with the other requirement of the definition of “inside information” which has regard to the market effects. These are the things that ‑ ‑ ‑
MR BENNETT: The materiality. I accept that entirely, your Honour, and I apologise if I appear at cross-purposes with your Honour. Accepting what your Honour says, your starting point, if we take the English statute as an example, is to look at whether or not it is information as defined within the regulation. You start by going to subsection (5), and it is information of the type captured in section 113C, “if it indicates circumstances that exist”. Now, test that proposition against the first respondent’s position here. A falsity is never a circumstance that exists. It can never be information for the purpose of subsection (5) of the English statute. It could never be information for the purpose of the market abuse directives.
KIEFEL J: For the purpose of your argument, how do you read subsection (5), paragraph (b):
Information is precise if it –
. . .
(b)is specific enough to enable a conclusion to be drawn as to the possible effect of those circumstances or that event on the price of qualifying investments or related investments.
We are talking about hypotheses.
MR BENNETT: The first thing we read on that (b) is conjunctive to (a) indicated by the word “and”. So it is a second quality that adds onto something that exists.
KIEFEL J: Yes, but you have to read the two of them together, that is very true.
MR BENNETT: I accept that entirely. So a mere statement of a circumstance that exists that is not specific enough to enable a conclusion will not constitute information for that purpose, but a falsity can never get past the hurdle of (a) to get to (b). So a specific falsity is not enough because by being a falsity it is not a circumstance that exists or may reasonably be expected to come into existence. So it is the conjunctive nature of that definition that is the answer to your Honour’s question.
HAYNE J: That may not give proper weight to the word “indicates”, but we are here not to construe the English provision. We are here to construe the Australian provision, are we not?
MR BENNETT: I accept that entirely, but it illustrates that within the Australian definition we would say that to conflate the concept of materiality with the quality of what is said to be information is to move to a second logically subsequent consideration. You need to have information, it needs to be inside and then you consider whether or not it has a material effect as defined by the statute. You do not start with the proposition that appears to have infected his Honour Appeal Justice Murray, with respect, where he said a lie will never be material, it will always be shown to be a lie and therefore that is how the statute winnows out lies. We know that not to be the case in society.
We know that lies can be pervasive until they are revealed and the question of materiality tested by the proposition Packer has bought 4.9 per cent of AdultShop, it is not going to be disproved in the market for some time or unless somebody seeks to do it. There is no disclosure obligation, as your Honours know, on a shareholding of 4.9 per cent, the trigger for substantial shareholding being 5 per cent. So how does it get disproved in the marketplace? So it is pervasive, we would say. It is not on its face something that, when held up to the light, a reasonable investor who commonly trades in securities says, “I do not believe that. It is no material effect.”
The propositions we drew from ‑ referring your Honours to the international legislative framework, is to say that they are only consistent with the construction of the statute advanced by the appellant and not by the first respondent. We would stand as an island separate from the rest of the regulatory system, we would say, if your Honours were to accept the proposition that a bare faced lie could constitute information for the purpose of insider trading. Your Honours should know that no other case law that the parties look to necessarily assists in this regard. Many of the cases deal with the proposition that what we are looking at in terms of inside information is factual knowledge. Your Honours are aware of the decision of his Honour Justice Young in the Barring Brothers Case, and your Honours pick that up in volume 1 of the book of material.
HAYNE J: What is the proposition you want us to take out of this?
MR BENNETT: I want to identify that case law in the lower courts has dealt with the concept of inside information being factual knowledge extended by the inclusive definition of supposition, an inference based upon facts, so that the concept that we advance that information is factual knowledge, as opposed to fictional invention, is consistent with the authorities and how they have dealt with that. The passage in Hooker v Baring Brothers to which I intended to refer your Honours one finds in the book of material at the bottom of page 389, and the report reproduced here is the 10 ACLR 462, and at the foot of what is 467 his Honour turned to the question of what is information.
KIEFEL J: I am sorry, whereabouts is this in the volume?
MR BENNETT: Does your Honour have volume 1 of the book of materials?
KIEFEL J: Yes.
MR BENNETT: At page 389.
KIEFEL J: Thank you.
MR BENNETT: The passage starts at the foot of the page and one goes across to the decision of Justice McInerney in Green’s Case, and what his Honour was there concerned with was that he drew from that that inside information is:
factual knowledge either of a concrete kind or that obtained by means of a hint or veiled suggestion ‑
then his Honour raised the query of ‑
whether it is safe to equate information and knowledge. Information is often defined as knowledge acquired –
and then posits in the second paragraph at line 18 ‑
To my mind information in sub‑s (1) goes further than knowledge and includes the situation where someone has been informed of something which he does not know to be true nor does he care whether it is true or not. In other words, information may include a rumour that something has happened with respect to a company which a person neither believes nor disbelieves.
HEYDON J: Is not that against you?
MR BENNETT: I need to confront it because it is put against me to say that your starting point is to go with factual knowledge, and then what his Honour is there talking about is the distinction that I drew before of criticality as the way in which the Crown ran its case; it did not run its case on the basis that Malcolm Day said something, it ran its case on the basis Packers bought 4.9 per cent.
Were the case, Malcolm Day said, Packers bought 4.9 per cent, that would be a rumour that something has happened with respect to a company which a person neither believes nor disbelieves. It cannot be a supposition by Mansfield, nor was it put that it was a supposition that was relied upon by the Crown in circumstances where it was put as a bare, alleged fact, a false fact. That distinction is of paramount importance and your Honours know that the criticality of the way in which the Crown pleads and its particulars in a criminal matter ‑ ‑ ‑
HEYDON J: Speaking for myself, I really do understand that point. What if the truth were ‑ and let us try and make it a little bit more abstract ‑ the alleged buyer had actually bought 3 per cent. Is that true or false on your argument?
MR BENNETT: If the reality were the alleged buyer had bought 3 per cent? The half truth.
HEYDON J: If true, is an expression which is applied very strictly, the provision will have a very narrow application.
MR BENNETT: Only if the Crown adopts that, the practice that it did here. There has to be precision between what is proved and what is alleged to have been known. There has to be a precise correlation. So, if you prove that we knew that we acted on 4.9 per cent, that is the case that is put and all that you can establish is 3 per cent, there is not a correlation between the information as alleged and the proof of the information.
HAYNE J: But how could the fact that Mr Day said x, y, z, be information?
MR BENNETT: Because the making of a statement by a person is itself a factual matter.
HAYNE J: Of course it is, but how could it be information?
MR BENNETT: Because it conveys that the managing director of a listed organisation has said something often concerning the organisation ‑ ‑ ‑
HAYNE J: And the real sting in it is the information conveyed, that is, what is conveyed. Is that not the way in which information is to be understood in this division? It requires identification of what is conveyed, regardless of truth or falsity. To that you apply the materiality consequence.
MR BENNETT: That is an argument that was advanced on appeal in Rivkin and rejected as an overly technical construction of the section by the Court of Criminal Appeal in New South Wales. If I can show your Honours how that was dealt with by their Honours? If you take up volume 2 of the papers and the decision that is reproduced there commences, your Honours, at page 600, the decision of President Mason and Chief Justice Wood and Justice Scully in the Court of Criminal Appeal in 2004. The relevant passage starts at 618 in paragraph [127] where the passage that I took you to in Justice Young’s decision in Hooker v Baring Brothers is referred to, and then their Honours write:
The distinction which it is suggested was drawn by Young J in this passage between information and knowledge, and the means by which knowledge is acquired, were relied upon in support of the proposition that information or knowledge does not extend to the means of its communication. Upon that basis it was submitted that “information” for the purposes of the section “could not be that someone said something”, and that as a result, the Crown case failed in limine.
Then it is asserted:
the Crown departed from its particulars . . . (that is that Mr McGowan “had said something”).
Then across the page at [131], their Honours just reject them without particular detailed reasoning. They say in [131]:
In our view these are arguments of the most technical kind that are entirely lacking in merit.
HEYDON J: That seems to leave Mr Justice Young standing.
MR BENNETT: Yes, and then [134] on the same page, they accept that who says something points to:
Its potential reliability depends upon its source . . . experts seem to have been in general agreement.
It appears to be accepted, at least by their Honours in that case, that the fact that a person says something can be information itself and not merely the means of ‑ ‑ ‑
HAYNE J: I am not sure that is consistent with paragraph [135] at all, Mr Bennett, of what their Honours say, but no doubt we will have to read the case with care but I would have thought [135] was to the opposite effect.
MR BENNETT: The particulars that were relied upon in that case your Honours find at the first instance ruling on the no case to answer submission, which is reproduced at 563 and 564, and your Honours see that particulars (1), (2) and (3) are each drafted in the fashion “Gerard McGowan said”. This was while Mr and Mrs McGowan were looking to buy a Rivkin entity owned residence in Bellevue Hill. They were the particulars that were relied upon for the purpose of the trial, and it was that which their Honours on appeal were dealing with ‑ ‑ ‑
HAYNE J: I think we are at point 9 of your written outline, are we not, Mr Bennett?
MR BENNETT: Yes, your Honour. The only other reference that I wanted to take you to in terms of a more recent adoption of the concept of information being factual knowledge was his Honour Justice Jacobson’s reasons for decision in ASIC v Citigroup (No 4), and your Honours find those in volume 1 of the material at page 179, the relevant passage being paragraph [534] of his Honour’s reasons for decision at page 179. This is part of a very long passage where his Honour deals with how non‑specific material can constitute information.
With the point that I have made to your Honours before about the fact of a statement made being constituting information, can I just briefly refer your Honours to the case that his Honour Justice Buss referred to as being an analogy to extend the definition or the concept of information into falsity? His Honour looked at the decision of the Full Court of the Federal Court in Win v Minister for Immigration and Multicultural Affairs, the neutral citation being [2001] FCA 56. It was not reproduced in the book of material, your Honours, but it dealt with the Migration Act, and a review of the decision of the Refugee Review Tribunal.
What had occurred is that an anonymous person had written to the Refugee Review Tribunal concerning the application by Win for refugee status, contesting whether Win was genuinely a person who politically opposed the regime in Myanmar, and the question as to whether or not that was raised was whether under that relevant statute – it was the Migration Act – the Tribunal was entitled to have regard to the letter or whether, it being asserted that the information contained in the letter was false, it was not entitled, and there the distinction lies, we would say, in that the Tribunal is entitled to have regard to the fact that an assertion had been made by somebody, even if the information were false, if only to put it to the applicant for refugee status to enable them to be heard on the allegations.
That is just not a proposition that advances the underlying point. Can I show you how this distinction, we would say, infected what his Honour Appeal Judge Buss’ treatment of the case at hand was. The case at hand was the pure fact was a falsity and that could not constitute information and the summary conclusion paragraph is paragraph 114, which your Honours find in book 9 of the appeal books at page 2891. Your Honours see that the way in which the learned appeal judge expresses his conclusion is to say:
In my opinion:
(a)a statement may be ‘information’, as defined, irrespective of whether or not the matters stated are reliable or have a sound factual foundation –
Now, that is consistent with Rivkin. We do not argue that as a proposition –
(b)an opinion, a prediction and a forecast may each be ‘information’ –
and we do not argue with that because this case is not about that –
(c)a statement, opinion, prediction and forecast may each be ‘information’, as defined, even if the person who makes or repeats the statement, opinion, prediction or forecast knows or believes that:
. . .
(iii)it is unreasonable, false or a lie.
Now, the making of the statement could be information, but that is not the case that was before his Honour. The case before his Honour is whether the statement, the fact, is a lie, whether that can constitute information. So his Honour having posited a conclusion that was different from the issue before him, then identifies what his Honour sees as 13 factors that go to the issue to support his conclusion, the first being that the definition of “information” contains no express stipulation that the information must be truthful. That, with respect, is to ignore the common meaning of the word “information” which is knowledge of a fact, communication of a fact.
His second reason is to say that it is not a defence, and that is to ignore the fact that it is an element of information. The third is to say that opinions, predictions, forecasts are uncertain and speculative and that may be right, but it is not the case that before his Honour. We would not argue with that as a proposition. The fourth is that “matters of supposition” will invariably, if not always – and I am not sure what that adds – be “insufficiently definite to warrant being made known to the public”. Does not follow that matters of supposition will not be information and, again, this case was never run by the Crown as a matter of supposition and that is not germane to the conclusion that a falsity cannot constitute information. It is a part of the extended definition of “information”.
The fifth item is information is not confined to matters “generated by or on behalf of the corporation whose securities are traded”. His Honour is right to say that the legislation moved away from the question of connection, but this is where her Honour Justice McLure says, without retreating into the person being connected, the information must be relevant to the corporation. It cannot be information irrelevant to the corporation, so some connection is necessary.
BELL J: Where is the statutory basis for that?
MR BENNETT: Nowhere. It is the commonsense concept of materiality, that the information must be related to the corporation otherwise it would be irrelevant. If somebody says the government of Australia is about to change, that may have an effect on the markets, but it is not related to the corporation as such. The starting point was that the legislation, when first introduced, required that the person who conveyed the information had a connection to the corporation. The Griffiths Report said that was unduly restrictive and they removed the connection point.
What her Honour Justice McLure argues, convincingly we would say, is the information still has to have a quality of belonging to somebody that is connected with the corporation. So it could be that if an assay laboratory was carrying out the assay on a core sample for a mining company and a scientist engaged in the assay then traded in the securities with knowledge of the assay results, that being information not generally available but likely to have an effect on the price of the securities, be price sensitive, then he would have a connection to the corporation because he was assaying their results.
HAYNE J: Do you seek to support what her Honour said at paragraph 18 of her Honour’s reasons? In particular, do you seek to support the proposition that, “[I]t is an element . . . that the inside information . . . correspond in whole or material part with actual inside information in the possession of the entity”?
MR BENNETT: Not entirely, your Honour, can I say. The qualified answer is we agree that it must correspond to actual inside information, that is factual matters. The possession of the entity is unduly restrictive. If I take the example that I was developing with her Honour Justice Bell a moment ago, if it was in the possession of the assay laboratory, it may not be technically in the possession of the entity but somebody connected with the entity.
If one looks at the Citigroup Case, the fact that Citigroup was advising on the Toll takeover, it is not in the possession of the entity, it is in the possession of their advisors but it is connected to the entity. So what her Honour says in terms of possession of the entity needs to be considered in a broader context than the words suggest, the mere word “possession” suggest, which in a legal sense would be unduly restrictive. But the correspondence with actual inside information is right, we would say, because it could not correspond – if it is a falsity and hangs outside the company, has no relationship to the company, then it cannot, we say, constitute information itself. It is a fiction, not a fact.
The sixth point that his Honour Appeal Justice Buss picks up back at 2893 in paragraph 121 was that the fact that information has been obtained from a particular source is itself information. That is a Rivkin proposition and we do not debate that, but again it is irrelevant to the facts before us and it is irrelevant to the question that his Honour was asked to conclude.
The seventh point in 122 is Division 3 does not require the Crown to prove that you use or rely upon the inside information. That is a trite proposition. That again does not bear on what is information, that is that possession is all that the statute requires, does not require proof of usage, but that again slides past the issue that was before his Honour. Paragraph 123 is Delphic in part, information that is not a factual reality may influence persons, we agree, and the legislation obviously agrees because it criminalises the making of false statements in Division 2 of Part 7.10.
His Honour posits the proposition that it may influence people even if untruthfulness is known to them. So if somebody lies to you and you know it is a lie it may influence you. I do not know what his Honour had in mind as an example of that. You may immediately sell your securities on the basis that the person who told you that, if they are connected the corporation, is a liar and you do not want to invest in a company where a liar is the managing director, would be a good reason to sell out of AdultShop in a trice. Perhaps his Honour had in mind, if you knew the lie was going to be touted through the market, you might get in first, or something of that nature. I do not know what his Honour had in mind, but it is difficult to understand how that could be the case. But, again, it is inconsistent with the civil right of damages in 1041H that is conveyed by the Corporations Act.
BELL J: Can I just take up one aspect of that branch of your argument. Accepting there may be some overlap between Divisions 2 and 3, the false and misleading statements with which Division 2 is concerned are not confined to false or misleading statements of an inside character.
MR BENNETT: I accept that.
BELL J: So one can see Division 2 is dealing with a very different problem in the securities market than the specific issue of insider trading, is it not?
MR BENNETT: Yes. But if one remembers that 1041H picks up as a civil remedy rights for contravention of 1041E through to 1041I, so 1041F is a material statement that induces a person to buy, a false statement that induces to buy, that would satisfy the test of materiality that is defined in 1043C.
BELL J: But that would include false statements that were generally available, would it not?
MR BENNETT: Yes.
BELL J: So that when one looks at what is being sought to be criminalised in Division 3 and one considers a person who is in possession of information which they know to be not generally available and which, on the face of it, is price sensitive, why would there not be an intention to attach criminal consequences to that, notwithstanding that the information is not factually accurate? Just looking at the policy of the divisions and they are rather aimed at different considerations, one might think.
MR BENNETT: If there is an overlap, it is in the nature of a Venn diagram or it is a subset of the liability for civil damages ‑ ‑ ‑
HAYNE J: It is not concerned with the position of the person who receives the information. The insider trading provisions are concerned with the health of the market.
MR BENNETT: I am sorry, your Honour, I was unclear in my answer a moment ago. Let me rephrase that, if I may. I start with the basic proposition that it is inconsistent with policy for a person to have a statutory right of damages for conduct that is itself criminal, so one would strain away from a construction that gave one party to an offence a right of damages for being engaged in an offence. The second point is to say there is no policy rationale that underlies the introduction of the insider trading provisions to safeguard – that is, market unfairness, market efficiency, misappropriation theory, injury to the corporation – that is advanced by the prosecution insider trading over falsities.
BELL J: But going in the market on the basis of a falsity and acquiring a substantial shareholding might work the very unfairness with which Division 3 is meant to concern itself, surely?
MR BENNETT: The unfairness is inequality of access to information.
BELL J: Yes.
MR BENNETT: The insider has access to information that the outsider does not and thereby gains an advantage either to sell or to buy in circumstances which will be unfair to the outsider. Where the person who becomes an insider becomes it on false information, they are excluded from the outsider in a manner that penalises them because they are dealing with a false market, a false market that the legislature tries to prohibit by Division 2. That is not the unfairness inherent in the policy rationale that underlies Division 3 which is you should not get the head start.
Mr Champion opened it to the jury by saying it is like knowing the answers to the question when you sit an exam and if you are given the wrong answers, you fail the test every time. The person who does not have the wrong answer has a chance of at least getting it right, but my client who receives a falsity has no chance of getting it right. He has got something that is false. He is trading on a completely false assumption, “Packer has bought 4.9 per cent, I better buy too”. Nobody else is thinking that because it is an untruth.
So when he goes into the market to buy, yes, his conduct of buying perhaps has a distorting effect on the market, but the fault for that the legislature puts at Day’s feet because he disseminates the false information. He needed to do that. He had two substantial shareholders selling down his stock, so he was pumping up his shares to create a market for them and he was doing it to the gullible and the naïve and the unwitting – and my client answers that description in spades – but not with moral turpitude, as my friend put it in his submission, because he is a victim under Part 2, not a criminal under Part 3. That is the point that we address. The unfairness needs to be considered as the advantage gained by getting true factual knowledge, even if it be a hint, a rumour, a supposition based on a truth, but you cannot suppose something to be true when you know it to be false.
I was at the ninth reason on page 2893, paragraph 124, that his Honour posits and this is where his Honour conflates materiality with falsity. His Honour writes:
For example, a statement which appears, on its face, to be completely without foundation, would be unlikely to influence persons who commonly acquire –
Now, of course that might be right. A falsity that is so completely absurd might be wrong, but if a rumour swept the market, for example, that Mr Andrew Forest had died tragically in an accident, that may be false and may be demonstrably false when Mr Forest appears on television, but for a moment people will say, “Well, if the market moves instantly”, quicker than instantly now that algorithmic trading takes place, but “I better sell immediately.” Something of that nature. But that simply posits an extreme example and does not deal with the facts that were before his Honour and it conflates, as we say, the second, or the logically subsequent question of materiality with the real issue that was before his Honour of what constitutes information for the purpose of the Act.
His Honour then posits as his tenth reason at paragraph 125 on page 2894, that it is consistent with the market fairness and market efficiency policy rationale and we, with respect, differ from his Honour in that regard. The 11th reason”
if a ‘primary insider’ reveals ‘inside information’ to a ‘secondary insider’ or ‘tippee’ with the intention that the ‘secondary insider’ . . . [the fact that] the ‘primary insider’ knows or believes that the ‘information’ is not ‘truthful’ . . . the ‘primary insider’ would be likely to incur a criminal liability –
So if we are told Packer has bought 4.9 per cent and we tell somebody else with the intention that they trade, we are liable for the tipping offence and that, again, we say, with respect to his Honour, does not grapple with the central proposition that his Honour was to consider, that is whether the false statement is information. His Honour’s 12th reason is to look at United States case law and say that they are generally unhelpful and they are not analogous and they are based on fiduciary duty and misappropriation of information. What we say of that is his Honour did not go far enough. If his Honour had looked at the full panoply of international regulation that the Griffiths Report urged the legislature to consider, then his Honour would have seen that, in the manner that we argue for in our submissions, it is directed to a different point.
The 13th point is that the trial judge had said there would be difficulty in directing a jury on how to deal with false information, and his Honour says that:
there is no difficultly in conceptualising how ‘information’ that is not ‘truthful’ or not a ‘factual reality’ could satisfy the test of
‘materiality’ . . . or how a jury should be instructed to approach the task where the [inside] ‘information’ is false.
That, we say, in the manner that his Honour then develops in 129 and 130, goes to show the difficulty that one would confront when talking to a jury and dealing with a jury and saying, “Although this is a complete lie, you would look at materiality of the lie itself and posit that as a false circumstance. What if the market were told this lie? What if a person who reasonably or commonly traded in the securities, which would probably be a professional share trader, or a hypothetical professional share trader, what would they know of this?”
So we say that, with respect to his Honour, the 13 reasons that he advances for the conclusion need to be considered, firstly, that the conclusion is not appropriate to the issue that is before your Honours and was before his Honour, was not the question of the statement being information but was the fact particularised by the Crown was said to be the information and, secondly, for the reasons we advance, the 13 reasons are not supportive of the ultimate conclusion if the ultimate conclusion be read differently from how we read it to be that a false statement can constitute information.
Appeal Justice Murray’s reasons for decision, we say with respect to his Honour, conflate materiality, and your Honours pick that up at page 2947 in paragraph 307 of the Court of Criminal Appeal’s decisions. His Honour’s reasoning, we say, is not persuasive and your Honours should not accept it. Unless there are any other matters that I can assist your Honours with, they are our submissions.
HAYNE J: Thank you, Mr Bennett. Yes, Mr Shirrefs.
MR SHIRREFS: If your Honours please. The starting point, in our submission, is to look at section 1043A, which is the prohibition with which we are concerned as being a criminal prosecution, and to pick up on matters raised in argument earlier by your Honour Justice Kiefel as to whether or not the meaning of “information” is broadened as a result of the prohibition being on the trading – on inside information, being information which is not generally available. The starting point in determining what is inside information, in our submission, has to incorporate within that the concept of information on the meaning of “information” as understood in Division 3 which, in our submission, is the ordinary meaning to the extent that it is broadened by section 1042A. I will come to that in a minute. Our primary submission is on any view of the analysis of the meaning it does not include lies and falsehoods.
I then want to turn to the case that we had to meet here. The Oxford English Dictionary, 2nd edition, provides a variety of meanings of “information”. Pertinent to this case is point 3 of that definition which defines “information” as being:
The action of informing . . . communication of the knowledge or ‘news’ of some fact or occurrence –
or in 3 to which I took your Honours earlier:
Knowledge communicated concerning some particular fact, subject, or event ‑ ‑ ‑
BELL J: Can I just take you back to 2. It includes, “the action of telling or fact of being told of something.”
MR SHIRREFS: It can be, yes.
BELL J: And if one goes to 3, it is “that of which one is apprised or told”.
MR SHIRREFS: It is knowledge of what one is apprised, “Knowledge communicated concerning some particular fact, subject or event”.
BELL J: And “that of which one is apprised or told”.
MR SHIRREFS: Yes, “that of which one is apprised or told; intelligence, news”. The case was conducted on the basis of the definition in 3, not the definition in 2.
HEYDON J: But if you look at the examples which the Oxford English Dictionary gives under 2, Paley, “Difficulties always attend imperfect information” and an earlier one is, “This I have by credible informacion learned.” That implies there can be non-credible information.
MR SHIRREFS: That is knowledge. That becomes knowledge of what is communicated. I was to take the Court to the meaning of “knowledge” in the Oxford English Dictionary, if I could provide it to your Honours. It is knowledge, connotes, that it actually exists. It starts at the bottom of the middle column, the reference to “knowledge”. Point 1, that is very circular and does not really assist:
To own the knowledge of; to confess; to recognize or admit as true.
Of course, a confession is usually when somebody confesses that which they believe to be true. Point 2 is:
To recognize or confess (a person or thing to be something) . . . To recognize (one) to be what he claims; to own the claims or authority of.
And then 3:
To own as genuine, or of legal force or validity; to own, avow, or assent in legal form . . . so as to give it validity:
In our submission, what is connoted by knowledge is the notion that it exists, not a statement of some particular fact. It is knowledge communicated of a fact, subject or event, in our respectful submission, and that was not this case. Unless there is anything further I can assist the Court with.
HAYNE J: Thank you, Mr Shirrefs. The Court will consider its decision in this matter and will adjourn until 9.45 tomorrow morning for the pronouncement of orders.
AT 2.53 PM THE MATTER WAS ADJOURNED
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