Noske v The Queen - [2017] WASC 56

JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
IN CRIMINAL

CITATION: NOSKE -v- THE QUEEN [2017] WASC 56

CORAM: HALL J

HEARD: 27 FEBRUARY 2017

DELIVERED : 8 MARCH 2017

FILE NO/S: INS 113 of 2016

BETWEEN: STEVEN ROBERT NOSKE
Applicant
AND
THE QUEEN
Respondent

Catchwords:

Criminal law - Insider trading - Expert evidence - Whether expert evidence as to the general availability and materiality of the alleged inside information is admissible - Whether witness qualified to give such evidence

Legislation:

Corporations Act 2001 (Cth), s 1042C
Evidence Act 1906 (WA), s 27A, s 27B

Result:

Rulings made

Category: B

Representation:

Counsel:

Applicant: Mr T Percy QC & Mr H R Robinson
Respondent: Mr S Van Dongen SC

Solicitors:

Applicant: Haydn Robinson
Respondent: Director of Public Prosecutions (Cth)

Case(s) referred to in judgment(s):

Bonython v The Queen (1984) 38 SASR 45
Clark v Ryan (1960) 103 CLR 486
Fysh v The Queen [2013] NSWCCA 284
Makita (Australia) Pty Ltd v Sprowles [2001] NSWCA 305; (2001) 52 NSWLR 705
R v Fysh [2012] NSWSC 1266

HALL J: The accused, Steven Robert Noske, is charged with one count of insider trading, in particular that between 2 February 2012 and 10 February 2012 he contravened s 1043A(1)(c) of the Corporations Act 2001 (Cth) (the Act) and in doing so committed an offence contrary to s 1311 in that he:
(a)being in possession of information that was not generally available but which, if it were generally available, a reasonable person would expect it to have a material effect on the price or value of division 3 financial products, namely shares in WestSide Corporation Limited (WCL); and
(b)knew or ought reasonably to have known that such information was not generally available and that if it were generally available a reasonable person would expect it to have a material effect on the price or value of WCL shares, acquired 750,000 WCL shares in his capacity as trustee of the 'Steven Noske and Patricia Noske - the Molly‑P Super Fund'.
The accused has pleaded not guilty to this charge and his trial is listed for ten days commencing on 20 March 2017.
The prosecution case is that on 3 February 2012 the accused received information that Liquefied Natural Gas Ltd (LNGL) had initiated a bid to take over WCL and was moving forward to acquire WCL. This was in the context of other information which is not presently necessary to refer to. It is alleged that that information was not generally available. It is also alleged to be information that would be likely to have a material effect on the price or value of WCL shares. Whilst in possession of this information the accused is alleged to have acquired shares at a time when he either knew or ought to have known that the information he possessed was not generally available and was material.
By an application dated 8 February 2017, the accused seeks an order that two reports of Mr Lee Bowers dated 4 February 2015 are inadmissible. Mr Bowers is an expert witness who the Crown proposes to call on the issues of the general availability of the information allegedly possessed by the accused which is said to be inside information, and the materiality of that information.

General availability

At the hearing of the application on 27 February 2017, senior counsel for the applicant submitted that the evidence proposed to be given by Mr Bowers regarding general availability was not properly the subject of expert opinion. It was said that Mr Bowers has merely summarised the content of publicly available information and then drawn a conclusion from that summary.
Section 1042(C) of the Act provides a definition of when information is generally available. That section states:
(1)For the purposes of this Division, information is generally available if:
(a)it consists of readily observable matter; or
(b)both of the following subparagraphs apply:
(i)it has been made known in a manner that would, or would be likely to, bring it to the attention of persons who commonly invest in Division 3 financial products of a kind whose price might be affected by the information; and
(ii)since it was made known, a reasonable period for it to be disseminated among such persons has elapsed; or
(c)it consists of deductions, conclusions or inferences made or drawn from either or both of the following:
(i)information referred to in paragraph (a);
(ii)information made known as mentioned in subparagraph (b)(i).
(2)None of the paragraphs of subsection (1) limits the generality of any of the other paragraphs of that subsection.
In Mr Bowers' first report of 4 February 2015, he provides responses to a number of questions that bear upon the issue of general availability. The relevant questions are 3, 4, 5 and 6. Those questions are as follows:
(3)Did the information consist of readily observable matter? If so, on what basis do you say that the matter was readily observable, and to which class of persons do you say it was readily observable?
(4)Did any readily observable matter (or set of readily observable matter together) contain or include the information?
(5)Was the information made known to the person who traded in a manner that would, or would be likely to, bring it to the attention of the class of persons you have identified in answering question (2)? If it was, then how long would it take, after the information was made known to the person who traded, for the information to be disseminated amongst the class of persons you have identified in answering question (2)?
(6)Did the information consist of deductions, conclusions or inferences made or drawn from:
(a)readily observable matter; and or
(b)information that has been made known in a manner that would, or would be likely to, bring it to the attention of the class of persons you have identified in answering question (2)?
For the purposes of completion it should be noted that question (2) asked Mr Bowers to identify the class of persons who commonly invest in financial products of a kind whose price might be affected by the information.
In answering question (3), Mr Bowers stated that he had conducted an extensive review of the following sources:
(1)Australian Stock Exchange company announcements from WCL and LNGL over the 12 months preceding (and including) 6 February 2012; and
(2)relevant media articles for the 12 months preceding (and including) 6 February 2012 received through the Factiva and Nexus internet search filters across a range of search terms involving relevant parties and project names.
I understand that all of the material reviewed by Mr Bowers has been copied, is contained in numerous lever‑arched files and has been made available to the defence.
On the basis of his review, Mr Bowers concluded that as at 7.18 am WST on 6 February 2012 no parts of the alleged inside information were readily observable. In answer to question (4), Mr Bowers concluded that at the same time and date no readily observable matter contained or included any part of the information. In answer to question (5), Mr Bowers concluded that the information was not made known to the person who traded in a manner that would, or would be likely to, bring it to the attention of a relevant class of persons. In regard to question (6), Mr Bowers concluded that the substantive parts of the relevant information did not consist of deductions, conclusions or inferences that could be drawn from any readily observable matter or information.
Mr Bowers' opinion in respect of general availability involves two stages. First, he has identified the sources of information that would be relied upon by the relevant class of persons who trade in WCL shares. Second, he has then examined that information to determine whether the alleged inside information was readily observable or can be deduced or inferred from readily observable information. The first stage involves the application of some specialised knowledge, that is, knowledge acquired by many years of experience as a mining equities analyst, that enables him to know what sources of information are available to and relied upon by the class of persons who invest in shares of this type. The second aspect is, however, more doubtfully reliant upon specialist knowledge. The accused submits that this aspect is merely a summary of the available evidence and that in this regard Mr Bowers' evidence is not admissible.
Both parties referred me to the ruling of McCallum J in R v Fysh [2012] NSWSC 1266. In that case, an expert had provided an opinion that the information in question was not generally available. Her Honour referred to the defence objection in the following terms:
Mr Walker submitted in that circumstance that the question whether the information specified does or does not appear within the 15 folders of material obtained as a result of ASIC's searches is simply not a matter for expert opinion evidence. The same argument would apply in respect of any other material consulted by Mr Dreyfus. Any issue as to the contents of those documents (in this instance relied upon to prove a negative) falls more readily within the provisions of s 48 and s 50 of the Act.
However, whilst that is correct so far as it goes, it is not necessarily the end of the matter. Mr Dreyfus's evidence as to general availability rests in part upon the fact that he has read the material provided to him by ASIC and has not found the alleged inside information within that material. However, his conclusion that the information is not generally available entails some analysis of the manner in which the information, had it been available, would be likely to have been brought to the attention of persons who commonly invest in Div 3 financial products [25] ‑ [26].
...
Section 1042C requires the Crown to prove a negative. It requires proof that the information is not readily observable and has not been made known in any manner that would, or would be likely to, bring it to the attention of persons who commonly invest in Div 3 financial products of a kind whose price might be affected by the information.
In short, what the Crown seeks to establish is that searches have been undertaken of the sources which would be likely to bring the information to the attention of persons who commonly invest in Div 3 financial products of a kind whose price might be affected by the information and that the information set out in MFI 3 does not appear in the material obtained as a result of those searches.
In my view, opinion evidence could be given by a person with substantial experience in the stock market as to the ways of making information known in that market that would, or would be likely to, bring the information to the attention of persons who commonly invest in Div 3 financial products of a kind whose price might be affected by the information. To the extent that the answer involves searches of documents, I accept that the next step (of establishing that the information does not in fact appear in such documents) is not an issue that requires specialised knowledge. It is a question of fact turning on the contents of documents, possibly to be characterised as an observed fact forming a premise of the opinion.
I see no reason in principle why an expert witness could not be the person to give that evidence, subject to the need for proper direction to the jury. The obvious way in which such evidence might be given in the case of voluminous documents is by way of summary in accordance with s 50. As noted during argument, subs (3) of that section provides that the opinion rule does not apply to evidence adduced in accordance with a direction under the section. It follows, in my view, that any person, expert or otherwise, who had read all the documents could give evidence (if the court so directed) in the form of a conclusion as to what information they did not contain [28] ‑ [31].
In the final paragraph her Honour refers to s 50 of the Evidence Act1995 (NSW). That provision enables voluminous evidence to be given by way of a summary, subject to a direction of a judge. During the course of argument on this hearing senior counsel for the Crown said that there was no equivalent of s 50 in this State. However, s 27A and s 27B of the Evidence Act 1906 (WA) are in similar terms. In any event, there were some intimations during the hearing that whether or not the materials examined by Mr Bowers contained the relevant information might be the subject of admissions. Failing that, I would be prepared to entertain an application to make directions pursuant to s 27A or s 27B.
I should also note that whilst the question of whether or not the relevant information appears in the documents examined is not strictly a matter of expert opinion, the same is not necessarily true of the question of whether the information can be deduced or inferred from that documentation. The drawing of deductions or inferences involves some understanding of the meaning and import of the available information. This may well be something that would be assisted by specialist knowledge of what those who deal regularly in the market would know and understand. However this was not a matter that was addressed in submissions. Rather, the objection focused on the simple question of whether Mr Bowers could give evidence as to what was (and was not) contained in the material that he examined.
During the course of argument I noted that Mr Bowers' conclusions were not confined to identifying the sources of information and summarising the content of that information, rather he had gone on to conclude that the available information did not consist of any readily observable matter and that at a particular point in time no parts of the alleged inside information were readily observable. Senior counsel for the Crown responded that the prosecution would not be leading the evidence in that way (ts 34). I understood from this that the prosecution would lead the foundation evidence but leave it to the jury as to what conclusion should be drawn as to general availability.

Materiality

As to the issue of materiality, the defence objection has two limbs. First, Mr Bowers is not sufficiently qualified to give an opinion on this issue. Second, the issue of whether the information is material is one which the jury do not require the assistance of an expert, that is it is not a matter which is properly the subject of expert opinion evidence. Although raised in that order, the second issue must be determined first.
The requirements for expert opinion evidence to be admissible were set out by Heydon JA (as he then was) in Makita (Australia) Pty Ltd v Sprowles [2001] NSWCA 305; (2001) 52 NSWLR 705:
In short, if evidence tendered as expert opinion evidence is to be admissible, it must be agreed or demonstrated that there is a field of 'specialised knowledge'; there must be an identified aspect of that field in which the witness demonstrates that by reason of specified training, study or experience, the witness has become an expert; the opinion proffered must be 'wholly or substantially based on the witness's expert knowledge'; so far as the opinion is based on facts 'observed' by the expert, they must be identified and admissibly proved by the expert, and so far as the opinion is based on 'assumed' or 'accepted' facts, they must be identified and proved in some other way; it must be established that the facts on which the opinion is based form a proper foundation for it; and the opinion of an expert requires demonstration or examination of the scientific or other intellectual basis of the conclusions reached: that is, the expert's evidence must explain how the field of 'specialised knowledge' in which the witness is expert by reason of 'training, study or experience', and on which the opinion is 'wholly or substantially based', applies to the facts assumed or observed so as to produce the opinion propounded. If all these matters are not made explicit, it is not possible to be sure whether the opinion is based wholly or substantially on the expert's specialised knowledge. If the court cannot be sure of that, the evidence is strictly speaking not admissible, and, so far as it is admissible, of diminished weight [85].
The matter in issue here is whether members of the jury would be capable of forming a correct judgment as to the materiality of the information without the assistance of a person with specialised knowledge: Clark v Ryan (1960) 103 CLR 486, 491 (Dixon CJ) (and see also Bonython v The Queen (1984) 38 SASR 45, King CJ at 365 ‑ 366). That requires an assessment of whether jurors would have an understanding of what factors are likely to affect those who trade in the shares of companies like WestSide in making decisions whether or not to sell or buy the shares.
In his second report, Mr Bowers expresses the opinion that had the alleged inside information been generally available it would have influenced, or been highly likely to influence the class of persons who generally trade in WCL shares in deciding whether or not to buy or sell those shares. He identifies why information regarding a possible takeover (as alleged here) is likely to affect those who deal in the shares. He refers to both his experience and academic literature to conclude that in the circumstances this information would raise an expectation that any takeover bid would be at a premium of 15 to 40% above the current market price. This in turn would drive demand and result in a significant increase in the trading price of the shares.
I do not accept that jurors would be able to draw conclusions as to the materiality of the information without the assistance of expert evidence. It is plain from Mr Bowers' report that he has drawn not only upon his own experience and his knowledge of academic literature but also his specialist knowledge of the way in which information is likely to be understood by, and to impact on, those who regularly trade in the market. This is not knowledge likely to be possessed by jurors, who cannot be assumed to be experienced share traders.
In R v Fysh, referred to earlier, there was also a challenge to the evidence of the expert regarding materiality. In that regard McCallum J said:
The intention of the legislature appears to have been that materiality must be measured against both reasonableness and some knowledge of the market. The expectations of a reasonable person are quintessentially within the province of the jury. That is an issue that need not, and should not, be informed by any subjective opinion or assessment, whether or not based on specialised knowledge. However, in expressly confining materiality to the likely influence of the information on 'persons who commonly acquire Div 3 financial products', the statute requires the jury to apply that test by reference to a reasonable person armed with some knowledge of the matters likely to influence the trading decisions of persons who commonly trade in the market. That is an issue which draws in part on matters of common sense well within the province of the jury, but one as to which specialised knowledge might also be brought to bear [11].
In Fysh v The Queen [2013] NSWCCA 284 [208], an appeal against conviction in the same matter, it was also accepted by the NSW Court of Criminal Appeal that the question of materiality must be measured against both reasonableness and some knowledge of the market. Whilst that was an issue which drew upon matters of common sense, it could also be the subject of specialised knowledge. The court recognised that on the facts of that case, reliance upon common sense alone without some expert evidence would have created 'a very difficult task for the jury' [210]. Those remarks are directly applicable to the facts alleged in this case.

As to the question of Mr Bowers' expertise, he sets out in his statement and in his reports his qualifications and experience. He graduated from the University of Western Australia in 2002 with a bachelor of commerce and a bachelor of laws with distinction. Between 2003 and 2008 he worked as an analyst for Macquarie Securities Group in Perth, in particular in relation to mid and small capitalisation mining companies. From 2008 to 2009 he worked in a similar role for RBC Capital Markets in Sydney. From 2009 to 2010 he worked as an associate director for Macquarie Securities Group in Sydney as a specialist in Australian mining research sales. From 2010 to 2013 he was the head of Australian mining research for Macquarie Securities Group in Sydney and Perth. In October 2013 he established his own consulting business. He is one of the principles of that practice and provides independent corporate business development and strategy advice in the mid and small capitalisation mining and exploration sector. His professional experience encompasses approximately nine years as a mining equity analyst, approximately one year in a specialist mining equities sales and trading role and approximately one year as a boutique equity market consultant. His role as an analyst involved the ongoing coverage and evaluation of listed Australian mining and exploration companies as investment prospects. This encompassed publishing detailed company analyses and valuations followed by regular written and verbal updates as new information came to light. His core role involved interaction with institutional investor clients, giving investment advice regarding trading strategy and implementation, issuing reports and broader market flows and observations. He has experience in asset valuation, corporate and asset benchmarking, providing price to value impact and being aware of investment processes and trading decision making criteria of a wide range of Australian market investors. None of this was the subject of challenge by the defence.
The objection, simply put, was that it would not be possible for Mr Bowers to say why particular people buy or sell shares or what information has influenced them. That is true, but it is hardly to the point. The question is not what caused any particular person to buy or sell shares but whether the information in this case is of a nature as to be likely to influence people who form the class who commonly deal in shares of this type. That is a matter in respect of which Mr Bowers appears to be well qualified to give his opinion.
There is often a danger with expert evidence that the expert will usurp the role of the jury or that the jury will be overawed by the expert and accept the opinion as sufficient proof of the fact without making any assessment of their own. These risks can be guarded against by ensuring that the expert is confined to addressing factual issues (rather than giving conclusions as to the elements of the offence) and by the trial judge giving the usual directions to the jury that the weight (if any) to be given to an expert's opinion is a matter for them and that it is not something they are obliged to accept. There is no reason to think that those safeguards would be ineffective here.
Expert evidence as to the question of materiality in this case is admissible and Mr Bowers is qualified to give it.