North v Marra Developments Ltd

[1981] HCA 68

HIGH COURT OF AUSTRALIA

Stephen, Mason, Murphy, Aickin and Wilson JJ.

NORTH v. MARRA DEVELOPMENTS LTD.

(1981) 148 CLR 42

9 December 1981

Contract

Contract—Defence of illegality—Company securities—Prohibition of acts calculated to create false or misleading appearance with respect to market for or price of securities—Purchases of shares on stock exchange for purpose of setting and maintaining market price—Action for fees for advice and services rendered by stockbroker—Whether conduct illegal—Whether conspiracy to deceive—Securities Industry Act 1970 (N.S.W.), s. 70.

Decisions

December 9.
The following written judgments were delivered: -
STEPHEN AND AICKIN JJ. We have both had the advantage of reading the reasons for judgment in this appeal prepared by our brother Mason. We agree with his reasons for concluding that the proposals recommended by the appellants and carried out by them and the respondent with respect to the sale and purchase on the Stock Exchange of shares in the respondent were illegal. The agreement to carry out the scheme, and the carrying out of the scheme itself, involved illegality in that the conduct in question was contrary to s. 70 of the Securities Industry Act 1970 (N.S.W.) and constituted an offence under that section. The consequence is that the amounts now claimed cannot be recovered. (at p48)

2. We are with respect unable to agree that the conduct of the parties constituted a conspiracy to deceive. There was, however, a common law conspiracy involved in the agreement to engage in conduct constituting an offence contrary to s. 70 of the Securities Industry Act. (at p48)

3. In the result therefore we are of opinion that the appeal should be dismissed. (at p48)

Mason J. The appellants are members of a stockbroking firm, a member of the Sydney Stock Exchange Ltd., which formerly carried on business under the firm name of "J. &J. North" but which now trades as "Norths". They sued the respondent Marra Developments Ltd. ("Marra") for the balance of remuneration due to them in connexion with services rendered as advisers in relation to a reorganization of the capital of Marra and its takeover of another company Scottish Australia Holdings Ltd. ("Scottish"), together with interest. The action was dismissed in the Supreme Court of New South Wales, Meares J. upholding a defence of illegality based on a breach of the provisions of s. 70 of the Securities Industry Act 1970 (N.S.W.) ("the Act") (since repealed and replaced by the Securities Industry Act 1975 (N.S.W.)) (1978) 2 NSWLR 338 . An appeal from this decision was dismissed by the Court of Appeal (1979) 2 NSWLR 887 . From that dismissal an appeal is now brought to this Court. (at p48)

2. Marra was incorporated in 1954 as a public company. In the early months of 1974 it owned a number of pastoral properties in New South Wales and up to that time approximately ninety-three per cent of its issued and paid up capital was held by some five families. Its shares were listed on the Sydney Stock Exchange. (at p48)

3. For some years prior to 1974 neither the balance sheets of Marra nor the market price reflected the true value of the assets of the company. From December 1972 until the end of February 1974 various members of the appellants, who were Marra's stockbrokers, discussed with certain of the directors the need to bring market capitalization into line with the real value of Marra's assets. (at p48)

4. The late Mr. Geoffrey Killen, Marra's chairman of directors, informed Mr. David North, one of the appellants, at a discussion early in July 1973 that he and his fellow directors were very concerned that the company was extremely vulnerable to a takeover, that he expected earnings to improve and that the net asset backing of Marra's shares was several times more than the market price. Why it was felt that the company was vulnerable to a takeover does not appear. The capital was closely held and this in itself suggested that a successful takeover would not be easily achieved. However, the parties appear to have proceeded on the footing that the company was vulnerable. Mr. North advised that it was important that the market should be informed of the company's position and that steps should be taken promptly to correct the existing anomaly. (at p49)

5. No further action was taken until January 1974 when Mr. North, having reiterated his earlier advice, proposed that three steps should be taken to correct the anomaly: (1) the shareholders should be informed of Marra's current position with respect to assets and income; (2) Marra's capital should be reconstructed; and (3) it should take over or merge with Scottish. The directors accepted these suggestions. (at p49)

6. On the advice of the company's auditors the directors concluded that each Marra $2.00 share was covered by net tangible assets of $22.50 and that the profits for the year ending 30 June 1974 were likely to be more than double the profits for the previous year. On this footing the directors accepted the appellants' recommendation that Marra should make a bonus issue of thirteen new $2.00 shares for every two shares held and that the $2.00 shares should then be divided into shares of $0.50 par value. The market price of Marra shares was then about $4.40. (at p49)

7. On or about 18 February 1974, Mr. Geoffrey Killen advised Mr. David North that a company was contemplating making a takeover offer for Marra at $15.00 a share. The directors decided that the offer should not be recommended and shareholders were informed accordingly. (at p49)

8. An important discussion took place between Mr. Geoffrey Killen and Mr. David North on the same day, or possibly on the following day. The only evidence of the discussion consists of a note made by Mr. North:
". . . I advised him that I thought the shares would well be worth in excess of $15.00, which would be equivalent to par value for the new 50 cent shares, and that we believed the shares would be a sound investment at that level and the directors should be prepared to buy some shares in order to establish the market. Mr. Killen asked me would we be prepared to buy at about that level. I said to Mr. Killen: 'Well let's look at the position'. The board had advised us that the asset backing for the shares was $22.50, that earnings were expected to rise to $800,000, that a takeover approach had been indicated at $15.00 and that if it was intended to recommend a dividend of 7 per cent on the new 50 cent shares, we would be prepared to buy at $16.50 which we would consider to be a sound level for the shares. I advised Mr. Killen that we must not take any market action whatsoever until after the announcement of the proposed reconstruction was relayed to the Stock Exchange and was made public in the press. He informed me that he would buy also at that level and also that he would recommend other directors to do likewise. He asked that we buy in the market on our own account initially until such time as he had completed arrangements with his fellow directors." (at p50)

9. The announcement of the proposed reconstruction was made to the Stock Exchange on 28 February 1974. The announcement pointed out that the reconstruction, together with the bonus issue, would result in an increase in the issued capital from 587,307 $2 shares to 17,619,208 fully paid $0.50 shares. $7,634,990 would thus be added to issued ordinary capital, which would total $8,809,604 after the reconstruction. (at p50)

10. In February 1974 negotiations proceeded between Marra and Scottish in relation to the proposed merger. The negotiations were complicated by the making on or about 12 February of a cash offer by another company Tiera Pty. Ltd. for Scottish shares. In the negotiations Marra and Scottish each sought to have the highest value established for its shares. Initial negotiations were based on a valuation of $15.00 for each Marra $2.00 share and $1.35 for each Scottish $0.50 share. Later Mr. Gleeson-White, a merchant banker advising Scottish, stipulated that the Scottish shares should be valued at $1.50. Had this valuation been adopted without an increase in the valuation of Marra shares, the takeover would have resulted in an increase in Marra capital and a diminished percentage holding of that capital by existing Marra shareholders. As a result of further negotiations, it was agreed that each Scottish share would be valued at $1.51 if Scottish shareholders applied for Marra ordinary shares or $1.45 if shareholders applied for Marra convertible redeemable preference shares. There was to be a compensating increase in the value of Marra shares to $16.50 for the $2.00 shares, the equivalent of $0.55 for the $0.50 shares after the reconstruction of capital. The final terms negotiated for the Scottish shares were alternatively: (a) two Marra 7 per cent $0.50 convertible redeemable preference shares plus $0.35 cash; or (b) eleven Marra $0.50 ordinary shares for every four Scottish $0.50 ordinary shares. Consequently the Stock Exchange price of Marra shares came to be material to the success of the proposed takeover. (at p51)

11. The announcement of the proposed offer was made to the Stock Exchange on 1 March 1974. The directors of Scottish stated that they proposed to recommend acceptance of the offer by all Scottish shareholders. Under the heading "Value of Offer" there appeared the following statement:

"Based on the last sale price of $16.50 for Marra shares on the Sydney Stock Exchange today, the new 50 cents ordinary shares in Marra would be valued at 55 cents, and the new convertible preference shares in Marra should be valued in the market at or above the conversion value of 55 cents. On this basis, the offer values Scottish Australian shares at: - at least $1.45 for the convertible preference share alternative, or $1.51 for the ordinary share alternative. These values are, respectively, 45% and 51% higher than the original takeover price proposed by Tiera Pty. Ltd., whose offer has now lapsed.

Based on the dividend rates indicated above for the new Marra ordinary and convertible preference shares, income to Scottish Australian shareholders will be more than doubled as a result of the merger." (at p51)

12. Reference should now be made to details of transactions in Marra shares. For the thirteen months from January 1973 to January 1974 the total turnover was only 7,600 shares, with prices ranging from $2.60 to $4.40. In February 1974 there was a turnover of 3,600 shares, none of which were purchased by the appellants, with prices ranging from $4.40 to $7.80. On 28 February Marra shares were quoted at seller $20.00, buyer $15.00, but there were no sales in February after 25 February. (at p51)

13. On 1 March, the day following the announcement of the reconstruction of capital, but before the announcement of the merger offer later in the day, the appellants purchased 1,100 Marra $2.00 shares, 720 of these at $16.50 and 380 at $16.00, on behalf of their "House" company J. &J. North Securities Pty. Ltd. On 4 March, the next day on which the Exchange was open, the appellants purchased a total of 1,500 shares, also on behalf of their "House" company, 1,480 of which were purchased at $15,00 and 20 at $16.50. With the exception of the purchase of an odd lot of two shares, the appellants were the only purchasers on that day. It should be noted that on both 1 and 4 March the first purchase of the day of Marra shares was a purchase of twenty shares only at $16.50 by the appellants. From 5 March to 16 April the appellants purchased on behalf of various directors (or their associates) and shareholders of Marra 15,240 shares, as opposed to 3,044 shares purchased by other brokers, at $15,00 for the first five purchases on 5 March and thereafter at prices varying between $15,50 and $16,50 for the $2.00 shares (or the equivalent price of $0.53 to $0.55 for the $0.50 shares after the reconstruction, these being listed and purchased from 1 April 1974). (at p52)

14. The appellants sued for $140,000, Marra having paid $35,000 only of the original claim for $175,000. The statement of fees and disbursements rendered by the appellants to Marra claimed:

"Corporate fees in relation to advice and negotiation in the reconstruction of the issued capitl of Marra Developments Limited (Marra) to reflect more appropriately the asset backing and earnings of the Company and as a basis of a takeover offer for Scottish Australian Holdings Limited (Scottish). Fees in relation to initiating and introducing the proposal to merge the two companies to the Chairman of Marra, Mr. G.L. Killen and to Mr. John Darling, Chairman of Scottish. . . . "

The statement went on to specify many other services claimed to have been performed in connexion with the reorganization of capital and the takeover. The statement made no mention of any arrangement to support the price of Marra shares on the market, nor did it claim fees for buying shares on the market. Presumably the appellants were paid commission by the purchasers (other than the house company) for the purchase of Marra shares on the market. (at p52)

15. In their amended statement of claim the appellants pleaded their case in three ways. First, they pleaded an agreement that Marra would pay the appellants' reasonable fees for the work done. Secondly, the appellants sued on an account stated for $140,000. The third alternative claim was an agreement made at or about the end of 1974 that in consideration that the appellants did not press Marra for prompt payment of the sum of $175,000 the respondent would pay five instalments of $35,000 at three-monthly intervals, the first instalment payable on 1 February 1975, plus interest at "standard overdraft rates", only one instalment of $35,000 being paid, together with interest of $6,309.59. The account stated and the subsequent agreement were based on correspondence between the parties, in particular a letter dated 18 December 1974 from Marra to the appellants which set out the terms of the subsequent agreement as I have related them. (at p52)

16. Marra's defence to the first agreement and the account stated was that it was illegal and unenforceable because it contravened ss.70 and 71 of the Act and the common law. Marra's defence to the second agreement was that it was not supported by consideration because the forbearance to sue for the sum of $175,000 under the original contract was illusory, the appellants being unable to sue on the original contract by reason of its illegality and unenforceability. (at p53)

17. In the Court of Appeal Samuels and Hope JJ.A., like Meares J. at first instance, held that the appellants' claim to relief arose out of an illegal agreement because that agreement contravened s. 70. Their Honours also agreed with Mahoney J.A. that the appellants could not recover because their claim arose out of an agreement which was illegal at common law. Mahoney J.A. found it unnecessary to decide whether there was a contravention of s. 70 or s. 71. (at p53)

18. An essential preliminary to an examination of the statutory provisions and common law illegality is a review of the findings of fact made at first instance and in the Court of Appeal. The difference in the approach taken by Meares J. and Mahoney J.A. is partly to be explained by the different inferences of fact which they drew. In this case the inferences to be drawn are decisive. Neither the appellants nor the directors of Marra gave oral evidence. The evidence is mainly documentary, much of it consisting of the appellants' answers to interrogatories. (at p53)

19. In answers to interrogatory no. 60, the appellants admitted that Mr. David North was aware that directors of Marra had formed an association to raise and maintain the price of the shares. It was further admitted that Mr. David North believed that the association was formed:
"To purchase Marra shares at $16.50 or thereabouts, as the market had until very recently been completely uninformed as to the true worth of Marra, and its shares had been traded at an unrealistic value; the release of information and the making of a takeover approach had substantially increased the market value of the shares; it was considered that the proper market value should be approximately $16.50, and that that figure would be attained or surpassed once the market had had the opportunity of evaluating the information; and in order to assist the market to evaluate the information as to the current net assets and earnings estimates, shares should be purchased at up to about $16.50, thereby assisting the establishment of a realistic market price and precluding a predatory takeover offer at below the true asset value figures." (at p53)

20. In answer to interrogatory no. 65 the appellants admitted that to the extent set out in 60 and 61 it was the intention of Mr. David North in effecting or participating in transactions involving the purchase of Marra shares "directly or indirectly to raise the current price" on the Stock Exchange of Marra shares or "to maintain such price at or about a particular level". (at p53)

21. It was further admitted in answer to interrogatories that, prior to 1 March 1974, the appellants or one or more of them considered that the level of the market price of Marra shares immediately prior to the announcement of the merger offer would be a factor in determining the success of the offer. Hope and Samuels JJ.A. thought that the admission was that it would be an "important" or "critical" factor. It is common ground that the answer was not in these terms. But the answer that "it would be a factor" indicates that it was material to the success of the takeover to persuade Scottish shareholders that Marra shares had a real market value of, not $15.00, but $16.50. The admission apart, I should have thought it was an important or critical factor and that the appellants so regarded it. It appears from a draft document prepared by the appellants and dated 26 February 1974, only three days before they embarked on a course of buying Marra shares at around $16.50, that the "Estimated Market Price" of Marra shares was only $15.00. This document was at the time of its preparation proposed to be issued as an announcement regarding the proposed merger. (at p54)

22. At the close of trading on the Stock Exchange on 28 February 1974 the ordinary shares in Scottish were quoted at $1.85 buyer, $1.90 seller. There was an overnight sale at $1.40 and special sales on 1 March 1974 at $1.55 and $1.80. Other sales on 1 March 1974 ranged between $1.85 and $2.00. Thereafter the market rose, reaching a plateau of $2.50 to $2.52 between 20 March and 10 April. (at p54)

23. It is apparent that the market price of Scottish shares between 28 February and 10 April was so high as to present a threat to the success of the takeover. On the face of it, the Scottish shareholder would fare better by selling on the market than by accepting the Marra offer, particularly the ordinary share alternative. The evidence offers no explanation for the high price which Scottish shares commanded in the market. One possibility is that the price was due to activity on the part of Tiera Pty. Ltd. and persons associated with it. However this may be, the point is made that the market for old Marra shares would need to stand at $25.00 approximately in order to make the Marra ordinary share takeover alternative a viable competitor with the market price for Scottish shares. So much may be acknowledged whilst asserting that it was important for the success of the takeover to maintain the price of Marra shares at $16.50 or thereabouts. Although old Marra shares never climbed above $16.50, their projected level, the takeover was successful. The result might well have been different had Marra shares fallen below their projected level. There were strong reasons why the directors of Marra and the appellants would have wished to see a market established at $16.50 or thereabouts. (at p54)

24. That the appellants relied heavily on the establishment of a market at $16.50 for Marra shares as a necessary or attractive element in the proposed takeover is evidenced by their subsequent conduct. During the afternoon of 1 March 1974 Marra and Scottish issued a press release. The release was prepared and issued by the appellants. It was an item for which they claimed payment in their statement of fees and disbursements. The press release, which was designed to place the takeover offer in its most attractive light, made the point that the value of the offer, based on the last sale price of Marra shares at $16.50, was much greater than the takeover price offered by Tiera Pty. Ltd. for Scottish shares. (at p55)

25. Again, the appellants participated in the preparation of a statement complying with s. 180C and Part A of the Tenth Schedule of the Companies Act 1961 (N.S.W.). The claim for payment of fees for services rendered in connexion with this statement was also made by the appellants. In par. 13 of the statement it was said of the Marra shares that "the latest available market sale price before the date of this Statement was $16.50". Further the statement specified as the highest sale price during the preceding three months "$16.50 on 1st March 1974". It went on to say "The latest available market sale price immediately prior to public announcement of the takeover scheme on the 1st March, 1974, was $16.50." (at p55)

26. Later, the appellants prepared Marra's formal merger offer to Scottish shareholders, once more claiming fees for the services which they provided in connexion with the preparation of this document. The formal merger offer set much store on the fact that the market value of the shares was $16.50. (at p55)

27. Mahoney J.A. found, rightly in my view, that: " . . . there had been devised by the plaintiffs (appellants) and agreed to by the defendant, a scheme which involved, inter alia, that there would be a reconstruction of the defendant's share capital; that . . . the plaintiffs and directors of the defendant would, by transactions on the Sydney Stock Exchange, 'establish a market' for Marra shares at $16.50 or thereabouts;" that a takeover offer by Marra for Scottish shares would be made involving an exchange of shares in the two companies; "and that the Stock Exchange price so 'established' for Marra shares would be . . . utilised in relation to that takeover offer." (at p55)

28. This finding was supported by Mr. David North's record of his discussion with Mr. Geoffrey Killen which plainly acknowledges the arrangements made by the parties "in order to establish the market" and that the appellants "must not take any market action" until after the Stock Exchange and the public were informed of the proposed reconstruction, the appellants agreeing to buy in the market initially on their own account until Mr. Killen completed arrangements with his fellow directors. The finding was also supported by the appellants' answers to interrogatories nos. 60 and 65 to which I have already referred. The euphemistic language in which these answers are expressed does not deny and in my opinion confirms the existence of the agreement found by his Honour, as do the subsequent actions of the appellants which I have recited in some detail. (at p56)

29. Mr. North's record of the discussion noted that Mr. Killen had inquired whether the appellants would buy at about $15.00, to which Mr. North responded by saying that they would buy at $16.50 and that they considered this to be a sound level for the shares. Mahoney J.A. was therefore correct in finding that the buying was "carried out in a manner directed to achieving the result that the purchases would be made at $16.50 per share or at a price of that general order". No doubt the subsequent negotiation with Mr. Gleeson-White which resulted in the placing of a valuation of $16.50 on Marra shares gave added importance to Mr. David North's agreement to buy at that figure or thereabouts - see answer to interrogatory no. 60. (at p56)

30. Mahoney J.A.'s finding is criticized because it fails to give effect to the uncontradicted expert evidence of Mr. Tilley, that an agreement to buy "at" a nominated price is an agreement to buy "at best" up to that price. Mr. Tilley's evidence would be of value if we were concerned to ascertain the effect of a simple agreement between broker and client without a constraining context. Here the substance of the agreement was very different - it was an agreement to buy specifically at $16.50 or thereabouts in order to attain a particular goal. Consequently, I agree with Mahoney J.A.: " . . . that it was not the purpose of the plaintiffs to buy the shares that they did at the lowest price reasonably obtainable; that the reason why they bought shares as they did was so that the Stock Exchange price of Marra shares would appear publicly to be $16.50 per share or of that general order; and that they did this so that that price could be used to advantage in connection with, at least, the takeover" of Scottish shares. (at p56)

31. His Honour went on to find that the references in the three documents prepared by the appellants to the Stock Exchange price of the shares were misleading. In these documents $16.50 was referred to variously as the "sale price", the "market sale price", "market price" and "market value". These references, unaccompanied by any disclosure of the nature and extent of the appellants' operations in the market, were, he thought, apt to mislead the reader of the documents as to the significance which should be attached to the price. I agree. His Honour also found that the appellants must have realized this, their purpose being to influence those who had occasion to consider Marra's offer to take over Scottish shares. (at p57)

32. Another criticism made of his Honour's findings is that he failed to take account of the conclusion of the primary judge that he was "not reasonably satisfied that the plaintiffs' activities had the effect of raising the price of the shares above their market value". Meares J. thought that the prices paid over the relevant period reflected prices which one would have expected the market to pay. With respect to the primary judge, this view seems to give no weight to the importance which the appellants attached to their action in "establishing" a market, to the marked preponderance of their activity in the market for Marra shares and to the dramatic fall in the price of the shares once the appellants' support and that of Marra directors was withdrawn. The final purchasing transaction effected by the appellants was at 2.39 p.m. on 16 April - a purchase of 1,000 new Marra shares at $0.55. There were two later transactions that day on the Exchange at $0.55 and $0.54. There was a further transaction at $0.55 on the following day. There were no further transactions until 29 April when there were sales at $0.50 and $0.46, followed by one on 30 April at $0.51. In May the highest price was $0.48, the lowest $0.40; in June the range was between $0.35 and $0.30; in July $0.38 and $0.28; in August $0.30 and $0.25; and in September $0.25 and $0.18. (at p57)

33. It is of importance to appreciate that Mahoney J.A. accepted that when the scheme was originally formulated the use of Stock Exchange prices in a misleading way was not seen as an inevitable element in the scheme. His Honour had this to say:
"I accept that the plaintiffs hoped (and perhaps believed) that, after some purchases had been made of Marra shares at $16.50 or thereabouts, purchasers on the Exchange would (to put the matter in the plaintiffs' favour) come to recognise the true value of the shares and that the price at which the shares would thereafter be traded would be approximately $16.50. But I am satisfied that from the outset the plaintiffs realised that it was quite possible that this would not occur and that the Stock Exchange price would in reality be the result of purchases made by them at the level they desired. In that event, if the resulting Stock Exchange price was to be referred to, without disclosure of how it had been established and maintained, then the reference to it was (depending of course upon the precise verbiage employed) apt to be misleading. Therefore, at the least, a person considering the plaintiffs' scheme and considering the possibility to which I have referred, would see that use of the Stock Exchange price pursuant to it without such disclosure would lead to misleading statements being made. In the event that is what happened." (at p58)

34. His Honour then found that, if it was not recognized before, a reasonable person in the appellants' position would have realized by the time that the Part A statement was being prepared that the use made of the Stock Exchange prices in that statement was misleading, that the use made of those prices in the announcement of 1 March was also misleading and that continued reference to that announcement would be misleading. His Honour inferred that the appellants, aware of their own special operations in the market, were conscious of the significance of their reference to Stock Exchange prices without any disclosure of these operations and of the misleading quality of these references. (at p58)

35. Quite apart from the argument examined earlier, that the references were not misleading because Meares J. found that the appellants' transactions had no effect on the market price, it is submitted that there was no misleading conduct by the appellants because the market is not concerned with the identity of purchasers or with their motivation so long as the purchases are genuine in the sense that they satisfy a legitimate market activity of the purchaser. This submission is important both in its application to common law illegality and to s. 70 of the Act. (at p58)

36. Section 70 provides:
"A person shall not create or cause to be created or do anything which is calculated to create, a false or misleading appearance of active trading in any securities on any stock market in the State, or a false or misleading appearance with respect to the market for, or the price of, any securities." (at p58)

37. The relevant prohibition in the section is against creating, or causing to create, or doing anything which is calculated to create, "a false or misleading appearance with respect to the market for, or the price of, any securities". (at p58)

38. In terms the statutory prohibition is directed against activity which is designed to give the market for securities or the price of securities a false or misleading appearance. In this setting, "calculated" means "designed" or "intended" rather than "adapted" or "suited". It is not altogether easy to translate the generality of this language into a specific prohibition against injurious activity, whilst at the same time leaving people free to engage in legitimate commercial activity which will have an effect on the market and on the price of securities. 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. (at p59)

39. 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. By "genuine supply and demand" I exclude buyers and sellers whose transactions are undertaken for the sole or primary purpose of setting or maintaining the market price. It is in the interests of the community that the market for securities should be real and genuine, free from manipulation. The section is a legislative measure designed to ensure such a market and it should be interpreted accordingly. (at p59)

40. I agree with Hope and Samuels JJ.A. in rejecting the suggestion that the section strikes only at fictitious or colourable transactions. Transactions which are real and genuine but only in the sense that they are intended to operate according to their terms, like fictitious or colourable transactions, are capable of creating quite a false or misleading impression as to the market or the price. This is because they would not have been entered into but for the object on the part of the buyer or of the seller of setting and maintaining the price, yet in the absence of revelation of their true character they are seen as transactions reflecting genuine supply and demand and having as such an impact on the market. (at p59)

41. When purchases have been made of shares in a company at or about a particular level for the purpose of setting and maintaining a market price for those shares there is a breach of the statutory prohibition. At the very least purchases have then been made which are calculated to create "a false or misleading appearance with respect to the market for, or the price of" the shares. In reality the purchases are calculated to create a false market or false price. The false or misleading appearance is that the market, in the absence of any disclosure that a market support operation is on foot, appears to be real or genuine, there being no overt sign of market support or manipulation. (at p59)

42. In passing I note that it is enough to breach the section that the activities are calculated to create a false or misleading appearance. It is not necessary that they do in fact create that appearance. Had I been disposed to agree with the finding of Meares J. as to the effect on the market of the transactions in which the appellants engaged, that finding would not have saved the appellants from a contravention of s. 70. (at p59)

43. The question then is whether the contravention of the section results in an illegality so as to prevent the appellants from recovering their remuneration. On the inferences drawn by the Court of Appeal the original agreement between the parties was one which from its inception contemplated the possibility of a breach of s. 70 as a means of executing the scheme which the parties agreed should be carried into execution. As events fell out what was a contemplated possibility became an actuality - the appellants carried out their part of the contract by contravening s. 70. It makes no difference that Marra acquiesced in what was done. The appellants' performance of the agreement involved an illegality and the agreement itself envisaged this as a possibility. The appellants fail, not because the agreement on which they sue is avoided by s. 70, but because the performance on which they rely involved illegal conduct. The consequence is that the claims based upon the account stated and the second agreement must also fail. (at p60)

44. Quite apart from contravention of s. 70, the inferences drawn establish that the appellants' claim was affected by common law illegality. The appellants' claim for remuneration was based on the commission of fraudulent conduct, the making of statements which were and were known to be misleading with a view to deceiving the Scottish shareholders. A claim for remuneration for fraudulent conduct is defeated by the illegality principle (E.T. Fisher &Co. Pty. Ltd. v. English Scottish and Australian Bank Ltd. (1940) 64 CLR 84, at pp 91, 103 ). The general principle was expressed by Lindley L.J. in Scott v. Brown, Doering, McNab &Co. (1892) 2 QB 724, at pp 728-729 in these terms:
"In this case the correspondence put in evidence by the plaintiff in support of the claim he made at the trial shews conclusively that the sole object of the plaintiff in ordering shares to be bought for him at a premium was to impose upon and to deceive the public by leading the public to suppose that there were buyers of such shares at a premium on the Stock Exchange, when in fact there were none but himself. The plaintiff's purchase was an actual purchase, not a sham purchase; that is true, but it is also true that the sole object of the purchase was to cheat and mislead the public. Under these circumstances, the plaintiff must look elsewhere than to a court of justice for such assistance as he may require against the persons he employed to assist him in his fraud, if the claim to such assistance is based on his illegal contract." (at p60)

45. As the fraud and illegality (common law and statutory) was a contemplated means of performing the contract and became an integral element in the appellants' performance of the contract there is no basis for treating the fraud and the illegality as collateral only or fraud as severable from the remainder of the work undertaken by the appellants. (at p61)

46. In the result the appeal should be dismissed. (at p61)

MURPHY J. I agree with Mason J. The appeal should be dismissed. (at p61)

WILSON J. I would dismiss the appeal, for the reasons given by Mason J. (at p61)

Orders

Appeal dismissed with costs.