R v Curtis (No 2)
[2016] NSWSC 795
•15 June 2016
|
New South Wales |
Case Name: | R v Curtis (No 2) |
Medium Neutral Citation: | [2016] NSWSC 795 |
Hearing Date(s): | 25, 26 May 2016 |
Date of Orders: | 26 May 2016 |
Decision Date: | 15 June 2016 |
Jurisdiction: | Common Law |
Before: | McCallum J |
Decision: | Accused’s application for a directed verdict dismissed; accused’s application for an order dismissing the conspiracy charge dismissed. |
Catchwords: | CRIME – conspiracy to commit offence of insider procuring contrary to s 1043A(1)(d) of the Corporations Act 2001 (Cth) – application for a directed verdict – content of requirement for Crown to prove that the alleged inside information was material where conspiracy charged – whether element of materiality capable of being established on the evidence – whether there was evidence on which the jury could properly find the insider knew the information was material – whether there was evidence on which the jury could properly find the accused intended that the offence of insider procuring would be committed pursuant to the agreement |
Legislation Cited: | Corporations Act 2001 (Cth) |
Cases Cited: | Doney v The Queen (1990) 171 CLR 207 |
Category: | Procedural and other rulings |
Parties: | Oliver Peter Curtis (Accused) |
Representation: | Counsel: |
File Number(s): | 2013/11107 |
Publication Restriction: | None |
JUDGMENT
HER HONOUR: Oliver Curtis was tried by jury for an offence of conspiracy to commit an offence relating to inside information, being the contravention of s 1043A(1)(d) of the Corporations Act 2001 (Cth). Loosely speaking, that section prohibits a person who has inside information from procuring someone else to buy or sell relevant financial products (that description is neither accurate nor complete but serves to introduce the issues addressed in this judgment). It is convenient for the purpose of this judgment to refer to the conduct prohibited under s 1043A(1)(d) as the offence of insider procuring.
At the close of the Crown case, Mr Curtis made two applications:
(a)an application for a directed verdict on the basis that there was a defect in the evidence led by the Crown such that, taken at its highest, it would not sustain a verdict of guilty and there was no case to be considered by the jury;
(b)an application for an order that the conspiracy charge be dismissed in the interests of justice pursuant to s 11.5(6) of the Criminal Code 1995 (Cth).
The applications were heard on 25 and 26 May 2016 in the absence of the jury. At the conclusion of argument, I dismissed both applications, reserving my reasons so as not to detain the jury further. This judgment records my reasons for dismissing the applications.
For completeness, I should record that, on 2 June 2016, the jury returned a verdict of guilty. Mr Curtis has not yet been sentenced.
Summary of the Crown case
The indictment on which Mr Curtis was arraigned contained the following count:
Between about 1 May 2007 and about 30 June 2008 at Sydney in the State of New South Wales, did conspire with John Joseph Hartman to commit an offence, being the contravention of sub-sections 1311(1) and 1043A(1)(d) of the Corporations Act 2001 (Cth).
Particulars
The agreement was that John Joseph Hartman would, from time to time, procure Oliver Peter Curtis to acquire or dispose of relevant Division 3 Financial Products, namely, Contracts for Difference, when John Joseph Hartman possessed inside information about the trading intentions of Orion Asset Management Limited in relation to the purchase or sale of shares in certain companies and when John Joseph Hartman knew that such information was not generally available and if it were generally available, a reasonable person would expect it to have a material effect on the price or value of those Contracts for Difference.
The following summary of the Crown case is given by way of introduction and is drawn primarily from my earlier judgment ruling on an objection to proposed coincidence evidence: R v Curtis.[1] The adequacy of the evidence relied upon by the Crown to prove its case is addressed separately below.
[1] [2016] NSWSC 660.
The Crown case rested primarily on the evidence of the co-conspirator, Mr John Hartman. He was employed as an equities dealer by Orion Asset Management Limited. Important evidence was also adduced from Mr Hartman’s former employer at Orion, Mr Dominic Fallins, and in documents that proved a number of trades engaged in by Mr Hartman and Mr Curtis, relied upon by the Crown as overt acts pursuant to the unlawful agreement.
Orion conducted the business of managing investments, primarily for institutional investors such as superannuation fund managers. It had about $7 billion under management as at the end of the period identified in the indictment. Orion offered different investment portfolios each consisting of a list of stocks chosen by its senior investment managers according to the advertised profile of the relevant portfolio. The investment managers determined the “target weighting” (by percentage) of each stock within a portfolio (that is, the composition of stock Orion would strive to acquire for that portfolio).
It was not possible for a portfolio ever to meet its target weightings exactly. The actual weightings fluctuated constantly as the price of the relevant stocks fluctuated on the stock market. In addition, the target weightings were regularly revised by Orion’s senior investment managers. In order to keep the composition of each portfolio as close as possible to the target weightings from time to time, Orion bought and sold large volumes of shares on a daily basis. Mr Hartman’s job was to execute those trades in accordance with instructions from the senior investment managers. The instructions were specific as to the stock to be acquired or disposed of over particular periods of time and the parameters (as to volume and price) within which that was to occur, but a measure of discretion was left to Mr Hartman as to the timing of his trading (in theory, so as to enable him to trade in the optimum volume at the best achievable price). Mr Hartman traded millions of dollars’ worth of shares on behalf of Orion each day.
Mr Hartman observed that, owing to the type and volume of shares in which it traded, Orion’s trading could have an impact on the price of the relevant stock. In mid-2006, unlawfully and contrary to the terms of his employment, he began trading in his own right using his inside information about Orion’s trading intentions (by “front-running” Orion’s trading).
Mr Hartman and the accused were best friends and each worked in the financial sector. The Crown alleged that, in early 2007, Mr Hartman told the accused what he had observed about the impact of Orion’s trades on the market and that they began discussing the prospect of trading cooperatively using the information available to Mr Hartman about Orion’s trading intentions. The Crown alleged that the two men agreed on a plan to capitalise on that information by “front-running” Orion’s trading together. The plan was that Mr Hartman would identify occasions on which his knowledge of Orion’s intended share trading could be used and would provide trading instructions to the accused based on that information. The accused was to place the trades as instructed and they would share the profits. According to the Crown case, it was understood that when Mr Hartman identified a particular share for their trading, the accused was to buy or sell contracts for difference (CFDs) in those same shares. By trading in contracts for difference, they were able to make substantial profits within a short period of time from relatively small movements in the price of the underlying share.
The Crown alleged that, in the course of their discussions, the accused informed Mr Hartman about a method of communicating using a Blackberry device which was secure and virtually undetectable (known as “PIN” messaging or “pinning”). There was evidence that the accused bought a Blackberry on 23 May 2007. The Crown alleged that he bought it for Mr Hartman, to enable them to communicate secretly.
On 24 May 2007, the accused opened an account with CMC Markets Asia Pacific Pty Ltd, a company that trades in CFDs. The account was opened in the name of a company, Encounter Investments Pty Ltd, of which the accused was the sole director. According to the Crown case, the accused and Mr Hartman began trading in accordance with their unlawful agreement the following day (25 May 2007).
The documentary evidence included records of 45 separate occasions, beginning on 25 May 2007, on which Mr Curtis opened a CFD position in particular shares on the same day that Orion bought or sold a large volume of the same shares. In most cases the accused opened his position shortly before Orion’s trading began and closed it before Orion finished. The Crown alleged that, on those 45 occasions, the accused acted on trading instructions sent to him by Mr Hartman via Blackberry PIN message, on each occasion causing Encounter to buy or sell CFDs in accordance with those instructions. Most of the accused’s trading on those occasions earned a profit; on five occasions he incurred a loss. That evidence was relied upon by the Crown as coincidence evidence in the manner allowed in the coincidence ruling given in my earlier judgment.
Grounds for the application
The application for a directed verdict was based upon the alleged failure of the Crown to establish that:
(a) the information that Mr Hartman is alleged to have possessed, and which is the subject of the charged conspiracy, was material in the sense required by sections 1043A and 1042D of the Corporations Act;
(b) Mr Hartman knew that the information he is alleged to have possessed would have a material effect on the price of the relevant Division 3 financial product; and
(c) Mr Curtis had the requisite intention in respect of the conspiracy charged.
The principles to be applied in determining the application were not in dispute. If there is no evidence upon which a jury could convict, it is the trial judge’s duty to direct the jury to return a verdict of not guilty. However, if there is evidence (even if tenuous or inherently weak or vague) capable of supporting a verdict of guilty, the matter must be left to the jury[2]. The question to be decided was not whether, on the offence as it stood, the accused ought to have been convicted but whether, on the evidence as it stood, he could lawfully be convicted.[3]
[2] Doney v The Queen (1990) 171 CLR 207 at 213-215.
[3] May v O’Sullivan (1955) 92 CLR 654 at 658.
Apart from raising an issue as to the adequacy of the evidence, the submissions directed to those grounds raised an important conceptual point relating to the Crown’s analysis of the elements of the offence. The Crown’s analysis (which was ultimately accepted by me) was reflected in the written directions given to the jury (MFI 25), as follows:
Elements
Before you can find the accused guilty, the Crown must prove beyond reasonable doubt the following elements:
1. The accused agreed with John Hartman to commit an offence in relation to the use of inside information contrary to s 1043A(1)(d) and s 1311(1) of the Corporations Act.
2. The accused intended (or meant) to enter into the agreement.
The Crown must establish that, in entering into the agreement, the accused and John Hartman each intended that an offence in relation to the use of inside information contrary to s 1043A(1)(d) and s 1311(1) of the Corporations Act would be committed pursuant to the agreement.
More specifically, for the accused to be guilty, the Crown must establish that, at the time of entering into the agreement the accused and John Hartman each knew or believed that particular facts would exist or acts would be performed pursuant to the agreement;
AND the Crown must also establish that such facts or acts would in fact make the conduct that was the subject of the agreement an offence in relation to the use of inside information contrary to s 1043A(1)(d) and s 1311(1) of the Corporations Act.
To that end, the Crown must establish the accused and John Hartman each knew or believed, at the time of entering into the agreement, that the following facts and acts would exist or be performed:
(a) John Hartman would, from time to time, possess information about the trading intentions of Orion in relation to the acquisition or disposal of shares (“the information”); and
(b) the information John Hartman would possess would not be generally available; and
(c) the information John Hartman would possess would be information that, if it were generally available, would, or would be likely to, influence persons who commonly acquire Division 3 financial products in deciding whether or not to acquire or dispose of contracts for difference in respect of such shares; and
(d) John Hartman would, when in possession of such information, procure the accused to acquire or dispose of CFDs in respect of the shares Orion intended to acquire or dispose of by inciting, inducing or encouraging the accused to acquire or dispose of such CFDs.
The Crown must also establish that the information the accused and John Hartman knew or believed John Hartman would possess would:
(a) in fact not be generally available;
(b) in fact be information that, if it were generally available, would, or would be likely to, influence persons who commonly acquire Division 3 financial products in deciding whether or not to acquire or dispose of contracts for difference in respect of such shares.
The Crown must also establish that either the accused or John Hartman committed an overt act pursuant to the agreement.
Mr Curtis noted that those elements were “conditional and subjunctive” in three ways. According to the Crown, it was enough to prove that Mr Hartman and Mr Curtis knew or believed that particular facts or acts would exist or be performed, which facts or acts would make the conduct the subject of the agreement an offence and those facts or acts included that Mr Hartman would possess information which would have certain specified characteristics.
Mr Curtis submitted that it was necessary for the Crown to prove that Mr Curtis had actual knowledge of the essential matters constituting the procuring offence, that is, that Mr Curtis “knew that the information the subject of the charged agreement answered the description of s 1043A(1)(d) read with ss 1042A, 1042C and 1042D of the Act”.
The difference between the Crown’s analysis and the position contended for by Mr Curtis lies, I think, in the identification of the time as at which the relevant knowledge or belief had to exist.
Mr Curtis submitted that, at the time the agreement is alleged to have been entered into, the information (which was yet to be ascertained) may or may not have been or become inside information. He submitted that, on that basis alone, the Crown case failed. It was further submitted that the Crown’s analysis of the essential elements of the offence was wrong because it made “no allowance for the objective component of the relevant test”.
The submission came close to contending that the offence of conspiracy to commit the offence of insider procuring contrary to s 1043A(1)(d) of the Corporations Act is not known to the law because the future subjunctive element (that the information would be “inside information” within the meaning of the statute) is incapable of being satisfied. The proposition appeared to be that one cannot know or believe that information that has not yet come into existence (although its future characteristics can be described) will satisfy the statutory test of materiality.
The submission put a compelling philosophical argument but, in my view, ultimately failed to grapple with what it is that is criminalised by the offence of conspiracy. The elements of that offence were considered by the High Court in The Queen v LK.[4] The Chief Justice explained in that case (at [1]) that the offence of conspiracy created by the Criminal Code is committed “where there is an agreement between the offender and one or more other persons, coupled with an intention, on the part of the offender and at least one of the other persons, that an offence will be committed pursuant to the agreement”.
[4] The Queen v LK [2010] HCA 17; 241 CLR 177.
As a matter of logic, where what is criminalised is the act of entering into an agreement to do something in the future (coupled with an intention that the agreed thing will be done), the expression of elements of the offence in the future subjunctive is inevitable. In the present case, the offence charged is that Mr Curtis entered into an agreement with Mr Hartman that Mr Hartman would procure Mr Curtis to buy or sell relevant financial products when Mr Hartman was in possession of inside information.
The content of the requirement of proof of an intention to commit the agreed offence was explained by the plurality in LK at [117] as follows:
The offence of conspiracy under the Code is confined to agreements that an offence be committed. A person who conspires with another to commit an offence is guilty of conspiring to commit that offence. It was incumbent on the prosecution to prove that LK and RK intentionally entered an agreement to commit the offence that it averred was the subject of the conspiracy. This required proof that each meant to enter into an agreement to commit that offence: Code, s 5.2(1). As a matter of ordinary English it may be thought that a person does not agree to commit an offence without knowledge of, or belief in, the existence of the facts that make the conduct that is the subject of the agreement an offence (as distinct from having knowledge of, or belief in, the legal characterisation of the conduct). This is consistent with authority with respect to liability for the offence of conspiracy under the common law. Subject to one reservation, it is how the fault element of the offence created in s 11.5(1) operates. The reservation concerns the application of s 11.5(2)(b). As these reasons will show, this provision informs the meaning of "conspires" in sub-s (1) by making clear that at least one other party to the agreement must have intended that an offence be committed pursuant to the agreement. It also speaks to proof of the accused's intention. The reservation arises because s 11.5(2)(b) is subject to s 11.5(7A), which applies any special liability provisions of the substantive offence to the offence of conspiring to commit that offence.
Sub-sections (2A) and (7A) were introduced into the Code by the Criminal Code Amendment (Theft, Fraud, Bribery and Related Offences) Act 2000 (Cth). A special liability provision includes a provision that absolute liability applies to one or more (but not all) of the physical elements of an offence. The Dictionary to the Code provides that a "special liability provision" is a provision that absolute liability applies to one or more (but not all) of the physical elements of an offence or that in a prosecution for an offence it is not necessary to prove that the defendant knew a particular thing or that the defendant knew or believed a particular thing. Proof of the intention to commit an offence does not require proof of knowledge of, or belief in, a matter that is the subject of a special liability provision.
The elements identified by the Crown in the present case correctly reflect the principles stated in that paragraph and, in particular, the proposition that, in order to prove agreement to commit a particular offence, the Crown had to prove “knowledge of, or belief in, the existence of the facts that make the conduct that is the subject of the agreement an offence (as distinct from having knowledge of, or belief in, the legal characterisation of the conduct).”
I do not think there is any inherent deficiency or conceptual difficulty in a case that rests upon proof of a belief as to a future circumstance. A conspiracy to supply prohibited drugs could be charged where two people agreed to commit the offence of supplying an existing quantity of drugs they knew to be methylamphetamine to a third person. Equally, the same charge could be brought where the two people agreed to supply a quantity of a drug not yet manufactured but which each believed would, when the process of manufacture was complete, be methylamphetamine.
In the present trial, the Crown case rested unequivocally on the proposition that, at the time the alleged unlawful agreement was entered into, the two men believed that Hartman would, in the future, come into possession of information that would be inside information and that he would, when in possession of such information, procure Mr Curtis to buy or sell the relevant CFDs. The future subjunctive aspect of the case does not create any conceptual difficulty of the kind suggested by Mr Curtis (in his written submissions at paragraph 19).
Mr Curtis’s written submissions referred at times to there being a requirement in the elements of conspiracy for the Crown to prove knowledge of the essential matters constituting the offence. I do not think it was intended to suggest that proof of belief, as opposed to knowledge, will not suffice but, if that was the intention, the distinction is not sustained by authority. The authorities cited by Mr Curtis included LK at [94] and [114]. In LK at [94], the plurality set out the conclusion of Spigelman CJ in the decision under appeal that “a person cannot be found guilty of an offence under s 11.5(1) unless s/he knows the facts that make the acts or act unlawful” (my emphasis). However, Spigelman CJ had in turn cited, as authority for that proposition, a passage from the decision of the High Court in Giorgianni v The Queen,[5] per Wilson, Deane and Dawson JJ which included the following words (emphasis added):
The necessary intent is absent if the person alleged to be a secondary participant does not know or believe that what he is assisting or encouraging is something which goes to make up the facts which constitute the commission of the relevant criminal offence.
[5] Giorgianni v The Queen (1985) 156 CLR 473 at 505, 506-507.
At [114] in LK, the plurality said:
Spigelman CJ’s analysis, that the common law offence of conspiracy requires that an accused person know the facts that make the proposed act or acts unlawful, should be accepted as an accurate statement of the law.
However, the passage at [117] set out above acknowledged that, in considering whether a person intentionally entered an agreement to commit the offence relied upon by the Crown as the subject of the conspiracy, it may be accepted that a person does not agree to commit an offence without “knowledge of, or belief in” the existence of the facts that make the conduct in question an offence.
Again, as a matter of logic, where an element of an offence relates to a future event, the expression of the required intention in terms comprehending belief as well as knowledge is inevitable.
Preliminary point as to the evidence
As to the adequacy of the evidence, before addressing the detail of the three grounds set out above, Mr Curtis made a preliminary point regarding a further alleged failure in the evidence. The submission related to the fact that the relevant Division 3 financial products (contracts for difference in the relevant shares identified by Mr Hartman from time to time based on his analysis of Orion’s trading intentions) were acquired not by Mr Curtis but by the company through which he traded, Encounter Investments Pty Ltd. Mr Curtis submitted that this was not “a mere technicality”; it meant that an additional legal person was involved in the alleged conduct.
In my view, the submission conflated the count on the indictment (conspiracy to commit an offence) with the overt acts relied upon by the Crown. The Crown relied on each of the 45 occasions (when Encounter’s trading matched Orion’s) as an overt act. But it was not necessary for the Crown to prove that, on any of those occasions, Mr Curtis acquired or disposed of relevant Division 3 financial products. The offence charged is that he entered into an unlawful agreement to do so. It is accordingly not necessary to consider the more difficult question whether the offence of insider procuring contrary to s 1043A(1)(d) could be established by proof that the insider procured a person to acquire or dispose of the relevant financial products through the agency of a corporate entity (there is a respectable argument that one could peer through the corporate veil in that circumstance, but that is an argument for another day).
Submissions as to the adequacy of the evidence
As noted at the outset of this judgment, the contention that there was no case to answer rested on three alleged failures in the Crown case, two relating to the issue of materiality and one relating to the issue of intention. The terms “material” and “materiality” were adopted during argument as shorthand for the second limb of the definition of “inside information” in s 1042A of the Act, as expanded upon in s 1042D of the Act.
Section 1042A provides:
"inside information" means information in relation to which the following paragraphs are satisfied:
(a) the information is not generally available;
(b) if the information were generally available, a reasonable person would expect it to have a material effect on the price or value of particular Division 3 financial products.
Section 1042D provides:
For the purposes of this Division, a reasonable person would be taken to expect information to have a material effect on the price or value of particular Division 3 financial products if (and only if) the information would, or would be likely to, influence persons who commonly acquire Division 3 financial products in deciding whether or not to acquire or dispose of the first-mentioned financial products.
As stated in the elements document provided to the jury, the Crown had to prove that Mr Hartman and Mr Curtis each knew or believed that the information Mr Hartman would possess would be material (the subjective part of the test) and that the information would in fact be material (the objective part of the test).
Materiality – the objective test
The first alleged failing in the Crown case related to the objective part of the test. Mr Curtis contended (emphasis added):
The information that Mr Hartman is alleged to have possessed, and which is the subject of the charged conspiracy, was not material in the sense required by ss 1043A and 1042D of the Corporations Act.
As pre-empted in the emphasised words, the submissions on that issue misapprehended the point in time at which the question of materiality was to be assessed (in the manner already explained). For example, it was submitted at paragraph 84 of the written submissions (emphasis added):
It is crucial to identify the information said to have been possessed by Mr Hartman and whether Mr Hartman communicated it to Mr Curtis. To be a party to the conspiracy alleged, Mr Curtis must have agreed with Mr Hartman that Mr Hartman would procure Mr Curtis to acquire or dispose of division 3 financial products when Mr Hartman possessed relevant inside information. That is, Mr Curtis must have known or believed that the information possessed by Mr Hartman constituted relevant inside information and that Mr Hartman intended to procure Mr Curtis to trade while Mr Hartman possessed that inside information.
Those submissions suggest that the task for the jury was to assess the quality of the information that in fact came into Mr Hartman’s possession at the time of the overt acts (after the entry into the agreement was complete). However, the requirement was for the Crown to establish, as at the time the agreement was entered into, that the information that would come into Mr Hartman’s possession in the future would be material.
In that context, it is important to observe the distinction between the element that had to be proved and the evidence relied upon to prove it. Each of the elements of the offence relating to inside information related to future information. The evidence relied upon to prove those elements included actual information possessed by Mr Hartman from time to time (both before the unlawful agreement was entered into and afterwards, in each of the 45 trades). That evidence was relevant to the assessment whether materiality was established. The actual information possessed by Mr Hartman from time to time was not the “inside information” particularised, although it revealed the kind of information the Crown alleged Mr Hartman would receive that would be inside information.
The burden of Mr Curtis’s contention that “the charged information is not material” was that the evidence in the Crown case did not establish that Orion’s trading intentions at any particular time in respect of any particular shares constituted inside information. However, the task raised by the “no case” application was to determine whether there was evidence on which the jury could properly come to the conclusion that the future information would be inside information and that Mr Hartman and Mr Curtis knew or believed that to be the case when they entered into the agreement.
Mr Curtis’s written submissions identified four reasons why “the charged information is not material”. First, it was submitted that, at a level of generality, Orion’s trading intentions “are and were to optimise its clients’ interests by achieving the best possible price” (that of course is not what the Crown was referring to by the phrase “Orion’s trading intentions” in the indictment). Mr Curtis submitted on that basis that Mr Hartman was bound to pursue a trading strategy that avoided any material impact on the share price. That may be so (as a matter of contract), but it does not follow that information as to the blocks of shares Orion would be buying or selling on any particular day was not material. The whole thrust of Mr Hartman’s evidence was that he began his unlawful trading on the strength of what he had observed as to the impact Orion’s trading could have on the share price.
Secondly, Mr Curtis submitted that there was no factual evidence as to any particular trading intention held by Orion in respect of any particular share. It was submitted on that basis that the notion of “Orion’s trading intentions”, which was relied upon by the Crown as the relevant “inside information”, was inchoate and lacked any meaningful content. The third point, which is related to the second, was that no factual evidence had been led as to the context in which any particular instance of Orion’s trading intentions arose and was carried out in the markets. The burden of the submission was that such context was necessary in order to assess materiality.
It may be accepted that the inside information specified in the indictment is inchoate in the sense that, at the time the unlawful agreement was entered into, the information did not yet exist and could only be described in kind; that is a feature intrinsic to the offence of conspiracy, which criminalises the initial stage of a plan to commit an offence. Recognising that Parliament has created an offence which is in itself inchoate, I do not think an objection on that basis can be accepted.
Further, I do not accept that the inside information specified in the indictment lacked any meaningful content. Parliament plainly intended to cast a broad net as to the kind of information to which the relevant prohibitions would attach; the Act expressly contemplates that inside information may entail a measure of uncertainty. The term “information” is defined in s 1042A to include “matters of supposition and other matters that are insufficiently definite to warrant being made known to the public” and “matters relating to the intentions, or likely intentions, of a person.”
The relevant information as particularised in the indictment was “information about the trading intentions of Orion Asset Management Limited in relation to the purchase or sale of shares in certain companies”.
It is true that the Crown case did not extend to proof of any particular instructions given to Mr Hartman or as to the context in which any particular trade occurred. He did not purport to recall individual trades. However, the evidence did establish the nature of Mr Hartman’s trading in some detail. It established that, in his role as an equities dealer at Orion from March 2006 to January 2009,[6] he received instructions on any given day,[7] based on Orion’s trading intentions,[8] to buy or sell large volumes of shares.[9] He knew the information he possessed was confidential to Orion and its stock broker [10] and that it was not generally available.[11] He had access to market sensitive information on Orion’s IRESS software platform to monitor the market in real-time.[12] IRESS was the main software stockbrokers and fund managers used to view trading. Although it was accessible to individual investors[13] it was sometimes delayed.[14]
[6] T146.24
[7] T143.29-32
[8] T142.10-18
[9] T146.49
[10] T 146.10-11
[11] T146.03
[12] T144.34
[13] T 145.05
[14] T 145.05
Mr Hartman gave instructions to Orion’s stockbroker to buy and sell shares. He could see when an order was placed for Orion, where Orion’s order sat in the market,[15] the buy and sell price and a list of people waiting to sell at a certain price according to the orders placed by Orion.[16] For almost all of Mr Hartman’s day at Orion,[17] he would monitor Orion’s trading and had the discretion to decide the price and the time at which shares were purchased.[18]
[15] T145:31
[16] T145.30-43
[17] T146.18
[18] T146.34
The general market conditions had an effect on what particular stocks were performing on each individual day, as well as the liquidity and volume of shares that were available in the market.[19] Mr Hartman’s role partly involved being aware of big buyers and sellers in the market and seek to cross shares off the market with those buyers and sellers.[20] Separately, and in addition to monitoring the IRESS system, crossing shares off the market involved Mr Hartman discussing with Orion’s stockbroker the shares Orion intended to trade in large quantities,[21] discussing different stocks and potentially the sort of volumes of stock.[22] In effect, the broker would match the buyer and seller for a particular quantity of shares so as to cross shares off the market.[23]
[19] T146.40
[20] T146.43
[21] T147.03
[22] T147.05
[23] 147.08
Once Orion’s stockbroker matched the trade,[24] and it had been agreed upon by the buyer and seller,[25] the broker would transact the deal through the [ASX] order book for all market participants to view the trade.[26] At that point the information became available on the public system[27] and generally accessible.
[24] T147.6-7
[25] T147.21
[26] T147.21
[27] T147.19-23
Mr Hartman had observed while trading for Orion that other participants in the market would take note of a large volume of shares being transacted at a certain price and that “potentially the market could change to reflect that that trade had occurred”.[28]
[28] T147.31
I considered that there was evidence on the strength of which the jury could properly conclude that, as at the time the allegedly unlawful agreement was entered into, it was the fact that Mr Hartman would from time to time receive information about Orion’s trading intentions that was material in the required sense.
The fourth reason relied upon by Mr Curtis to support the contention that “the charged information was not material” was that no expert evidence was led by the Crown as to materiality. It was submitted that such matters lie beyond the ordinary knowledge of a jury and properly call for expert evidence. Mr Curtis submitted that, absent such evidence, the jury must have a doubt about the element of materiality such that a directed verdict was appropriate.
I did not accept that submission. Expert evidence might have been admissible but its absence was not determinative. The issue of materiality is a question of fact and one which, in this case, is not overly technical or specialised. To the extent that the test invokes the standard of a reasonable person, it is quintessentially within the jury’s ken. It may be accepted that the Corporations Act guides that assessment by reference to a more specialised notional decision-maker, the class of “persons who commonly acquire Division 3 financial products”. In the present case, however, that was still a relatively straightforward issue the determination of which, in my view, fell within the capacity of a lay person.
In Mr Curtis’s written submissions at paragraph 103, it was acknowledged that intention may constitute inside information. So much is clear from the definition of “information” in s 1042A of the Corporations Act. It was submitted, however, that a person’s intention per se to trade in a share, without more, would rarely if at all constitute relevant inside information. It was submitted that further information would be required, such as that a person already owned a substantial portion of a public-listed company or an intention to make an on-market takeover bid, or acquisition of shares “at a reasonable premium to the last sale”.
In my view, the fact that the intention was that of a company with billions of dollars in funds under management and included, from time to time, an intention to acquire or dispose of millions of dollars’ worth of a particular stock on a particular day within a particular price range could constitute inside information. It was open to the jury to reach that conclusion without the benefit of expert assistance.
Signalling – a false issue
A focus of Mr Curtis’s submissions was the evidence given by Mr Hartman in cross-examination. Broadly speaking, that evidence established that, when executing Orion’s trading intentions, if Mr Hartman was required to buy a large parcel of shares in the one stock, he would not place an order for the whole amount immediately but would rather buy the relevant shares over time “so as not to signal to the market that there was a big buyer around”.[29] Mr Hartman accepted that, when he was trading for Orion properly, and was trying to buy at the lowest possible price (for the benefit of Orion’s clients), he would buy in smaller volumes at a time and build his position up slowly.[30]
[29] T211.46
[30] T211.50
However, when Mr Hartman was acting in his own personal interests by front-running Orion, he did not seek to achieve the best price. Rather, he traded aggressively, in large volumes and quickly, which resulted in upwards or downwards pressure being placed on the share price.[31]
[31] T215.01
Mr Curtis relied on that evidence to establish that “the real inside information” was not Orion’s trading intentions (as particularised in the indictment) but the manner in which Mr Hartman executed his instructions based on those intentions. It was submitted that Mr Hartman’s “manipulation of the market to create the opportunity for trading profits” was the information that was capable of having the characteristic of materiality.
The submission posed a false dichotomy. Mr Hartman’s aggressive trading may have enabled the two men to make greater profits more quickly; it does not follow that the bare information specified by the Crown as the relevant “inside information” (the fact that Orion was intending on any particular day to buy or sell a particular volume of a particular stock within a particular price range) was not capable of meeting the statutory test of materiality. I considered that, shorn of the additional feature established in cross-examination (the aggressive trading), the information specified by the Crown was still capable of being found to meet the statutory test. As discussed above, there was evidence on the strength of which the jury could be satisfied of that element, in my view.
For those reasons, I concluded that there was evidence on which the jury could properly come to the conclusion that, at the time of entering into the agreement, Mr Curtis and Mr Hartman each knew or believed that Mr Hartman would at some future point in time possess information about Orion’s trading intentions in relation to the purchase or sale of shares in certain companies and that such information would meet the statutory definition of inside information.
Materiality – the subjective test
The second alleged failing in the Crown case related to the subjective part of the test for materiality. Mr Curtis submitted that the evidence could not establish that:
“Mr Hartman knew that the information he is alleged to have possessed would have a material effect on the price of relevant division 3 financial products”.
The issue of Mr Hartman’s knowledge of materiality was addressed in detail at paragraphs 98 to 112 of Mr Curtis’s written submissions. Those paragraphs rehearsed the proposition that the evidence could not establish the objective materiality of any particular information; there was a degree of overlap between the two points.
Without derogating from the careful detail of the written submissions, I think they are answered by two propositions. The first is the temporal point. The submissions focussed in detail on the failure of the evidence to establish what information Mr Hartman possessed at the time of each of the 45 trades and the materiality of that information. However, the Crown did not have to prove that any inside information in fact came into Mr Hartman’s possession after the agreement was entered into (in fact, the Crown sought to prove that such information came into Mr Hartman’s possession at least 45 times but, for present purposes, that is by the by). What the Crown had to prove was that, at the time the unlawful agreement was entered into (which, on any view, was before the first trade on 25 May 2007), the two men knew or believed that Mr Hartman would possess inside information and that the information he would possess would in fact be inside information. The submissions conflated the conspiracy with the evidence relied upon to prove overt acts.
The second proposition which, in my understanding, answers Mr Curtis’s submissions on this issue is that the Crown did not have to prove Mr Curtis was at any point of time in possession of inside information. Mr Curtis’s submissions noted that the only specific information he was alleged to have possessed from time to time related to a particular company and whether CFDs in that particular company should be bought or sold and at what volume or price. However, on the Crown case, Mr Curtis was not “the insider”. The offence the men allegedly agreed to commit was the offence of insider procuring. For the purpose of that offence, the insider was Mr Hartman and the agreement was that Mr Hartman, whilst in possession of inside information, would procure Mr Curtis to trade. The submissions noted that the Crown case did not specify the actual information communicated to Mr Curtis by Mr Hartman. However, it was not necessary for the Crown to prove that the inside information possessed by Mr Hartman (the insider) was communicated to Mr Curtis; the Crown had only to prove each knew or believed that Mr Hartman would procedure Mr Curtis to trade when Mr Hartman possessed inside information.
Mr Curtis submitted at paragraph 102 of the written submissions, “further, for Mr Curtis to agree with Mr Hartman to intend to commit the substantive offence alleged, Mr Curtis would need to be aware of that same information and that it was not generally available and to know that the information was material”. As just explained, the Crown did not have to prove that Mr Curtis was at any point in possession of the same information as Mr Hartman (or indeed any information). Rather, the Crown had to prove that Mr Curtis knew enough about the information Mr Hartman would possess at some point in the future for it to be concluded that he knew or believed that information would be inside information.
At the close of the Crown case, I considered that it would be open to the jury, on the evidence, to conclude that both Mr Hartman and Mr Curtis knew or believed that Mr Hartman would, from time to time, possess inside information.
Mental elements of conspiracy
Finally, Mr Curtis submitted that the Crown case failed to establish that he had the requisite intention in respect of the conspiracy charged.
The “elements” document provided to the jury directed them that they had to be satisfied that the accused agreed with John Hartman to commit the offence of insider procuring; that the accused intended (or meant) to enter into the agreement and that each of the accused and Mr Hartman intended that the offence of insider procuring would be committed pursuant to the agreement. The jury was further directed that, for the accused to be guilty, the Crown had to establish that he knew or believed that particular facts would exist or acts would be performed, as listed on the flip side of the elements document. I took it to be common ground, prior to the commencement of the summing up, that the elements document correctly reflected the principles stated in LK and Ansari v The Queen[32] in that respect.
[32] [2010] HCA 18; 241 CLR 299 at [60].
In support of the “no case” submission, Mr Curtis submitted that it would not suffice if the Crown case proved only that he suspected or believed that Mr Hartman was using inside information or that he ought reasonably to have known that the information was inside information. As to suspicion or constructive knowledge, I agree. However, as explained above, proof that Mr Curtis believed the information Mr Hartman would possess would be inside information was enough to satisfy that aspect of the mental element.[33]
[33] The Queen v LK [2010] HCA 17; 241 CLR 177 at [94] and [117].
Mr Curtis submitted that, at its highest, the Crown case was that Mr Hartman and Mr Curtis entered into an agreement to deal with shares nominated by Mr Hartman whether or not he possessed inside information in relation to those shares (amounting only to recklessness, not intention). The evidence said to support that contention was set out at paragraph 116 of the written submissions as follows:
The Charged agreement was described as follows by Mr Hartman:
(a) "we came up with a plan whereby I would tell Ollie the stocks that Orion was to buy or sell so that he could use that information on the account that he had set up for us both to share in the profits of": T154:6-8;
(b) "It happened over a period of time. So it was, it started off just throwing an idea around. It wasn't a, you know, something that we sat down and set aside time to discuss, you know, it was having that evolved over time, to the point at which he bought a Blackberry for me to communicate information to him with": T155:14-17;
(c) "the conversation that we had leading up to buying the Blackberry was because we both knew that the information was confidential and what we were going to be doing was effectively front running or insider trading, that we needed to be careful about communicating with each other": T156:2-6;
(d) in response to a question as to what permitted him to conclude that Mr Curtis was aware that the information was confidential, Mr Hartman responded: "he understood exactly what the information was and where it was coming from, the fact that he'd, it was his idea regarding pinning, you know, that made the confidentiality, it suggested to me he understood that the information was confidential and insider information": T156:11-14 (emphasis added);
(e) the instructions Mr Hartman claimed to give Mr Curtis were as follows: "I would send a pin to him telling him what the trade should be, so telling him the price to buy, telling him what share or CFD to trade in, how much, or quantity, and what the price of the trade should be done at:" T156:20-23. His evidence was that he would instruct Mr Curtis to "for example, buy a million shares of this stock at this price": T156:39 and see T165:22-45. To close a trade: "I would send instructions by pin to Ollie to sell the CFDs or shares at a certain price and because we might have bought, for example, a million shares": T167:l-7;
(f) as to the content of the Charged Arrangement, Mr Hartman's evidence was that: "So the deal was that we would share, that Ollie would fund the CFD account, I would pass the information and then we would share the profits 50/50, after we had taken into account the account fees. The operator would have to pay tax and brokerage as well to CMC Markets. So it was a very crude sort of measure, but it was that you would take out 50 percent for tax and brokerage and then we would share the other amount left over 50/50: "T161:14-19.
I accept that it would not be enough for the Crown to establish recklessness as to whether the information Mr Hartman would possess would be inside information. However, I was of the view, at the close of the Crown case, that the jury could properly conclude on the strength of Mr Hartman’s evidence that Mr Curtis entered into the agreement intending that the offence of insider procuring would be committed. Indeed, having regard to the evidence concerning the purchase of the BlackBerry, the conversation about its facility for undetectable communication and the evidence concerning Mr Curtis’ establishment of a separate account with CMC Markets the day before the first of the 45 trades, I considered the Crown case on that element to be strong.
For those reasons, I rejected the application for a directed verdict.
Application to have the conspiracy charge dismissed in the interests of justice
The offence of conspiracy is created by s 11.5 of the Criminal Code. Section 11.5(6) provides:
A court may dismiss a charge of conspiracy if it thinks that the interests of justice require it to do so.
Mr Curtis submitted that the conspiracy charge should be dismissed pursuant to that section on the following grounds:
(a)It is unfair to Mr Curtis to charge conspiracy when:
(i)It is alleged that a substantive offence has been committed; and
(ii)The alleged co-conspirator was charged for, and pleaded guilty to, the substantive offence and not a conspiracy;
(b)The trial has been rendered unfair by the manner in which the Crown has attempted to prove the charges.
Mr Curtis did not identify any authority in which the power under s 11.5(6) has been exercised. The application relied, rather, on older authorities discussing the undesirability of charging a conspiracy in circumstances where it is alleged that a substantive offence has been committed: R v Hoar,[34] per Gibbs CJ, Mason, Aickin and Brennan JJ and at 40 per Murphy J; R v Mok,[35] per Hunt J.
[34] (1981) 148 CLR 32 at 38
[35] (1987) 27 A Crim R 438 at 433
Mr Curtis submitted that the prejudice of charging an offence of conspiracy rather than a substantive offence was exacerbated where the underlying offence is a technical statutory offence such as insider trading. It was submitted that, in the present case, the Crown appeared to be relying on an offence of conspiracy so as to avoid the need to establish “Mr Curtis’s relevant knowledge of, or belief in, inside information”. In particular, it was submitted that the conspiracy charge allowed the Crown to contend that:
(a)It need not prove the illegal character of the information in fact possessed by the accused, save ex ante and at the highest level of generality; and
(b)It need not prove that the accused actually possessed any relevant knowledge.
Mr Curtis submitted that that approach was an abuse of the use of a conspiracy charge such as to engage the operation of s 11.5(6) of the Code.
The Crown noted that the application of Hoar was considered by the Court of Criminal Appeal in Elomar v R.[36] That was an appeal against a refusal to dismiss a charge of conspiracy under s 11.5(6). The Court (Bathurst CJ, Hoeben CJ at CL and Simpson J) observed at [494] that, in Hoar, the Court:
“went no further than to describe the preferring of conspiracy charges as ‘undesirable’ in circumstances where ‘there is a sufficient and effective charge that this offence has been committed”.
[36] [2014] NSWCCA 303; 300 FLR 323.
The Court further observed that those remarks in Hoar were made in the context that both a charge of conspiracy and substantive charges had been laid. The Court considered that a concern (if not the concern) addressed in Hoar was the prospect of prolonging and complicating the trial (by including a charge of conspiracy on the indictment).
In dismissing the application at first instance, Whealy J had referred to the remarks of Lee J in R v Shepherd[37] to the effect that, in the circumstances of that case (a wide-ranging narcotics ring), it was entirely proper and indeed in the interests of the community that charges of conspiracy be preferred. Whealy J had regarded those remarks to be of “even greater immediacy and cogency” in the case of an extensive organisation set up to take a series of activities in preparation for terrorist attacks. The Court of Criminal Appeal dismissed the appeal against Whealy J’s decision.
[37] (1988) 37 A Crim R 303.
The present case is not one of a wide-ranging conspiratorial ring of terrorists or drug dealers. But the proposition recognised in Shepherd and endorsed in Elomar is that the remarks in Hoar cannot be elevated to an immutable rule that a charge of conspiracy is liable to be dismissed if a substantive offence could have been charged. On the contrary, in the present case, the power to dismiss the charge under s 11.5(6) does not arise unless I am persuaded to the conclusion that the interests of justice require me to take that course.
The juridical context in which that assessment is to be undertaken was explained by the Court of Criminal Appeal in Elomar at [492]-[493]:
The selection of charges to bring against an alleged offender is essentially an exercise of prosecutorial discretion. As a general principle, the exercise of that discretion is unreviewable: Maxwell v The Queen [1996] HCA 46; 184 CLR 501, at 512 and 534, Likiardopoulos v The Queen [2012] HCA 37; 247 CLR 265 at [37], Elias v The Queen; Issa v The Queen [2013] HCA 31; 248 CLR 483 at [33]-[34], Magaming v R [2013] HCA 40; 302 ALR 461 at [20]-[22] and James v The Queen [2014] HCA 6; 88 ALJR 427 at [37].
It is only in rare cases (if at all) that courts will interfere with that discretion. In part, at least, that is a feature of the doctrine of separation of powers. Section 11.5(6) of the Code is a statutory incursion into the general principle. However, in the consideration of the exercise of the discretion conferred by s 11.5(6), courts should not lose sight of the principle or the reason for its existence. Section 11.5(6) permits a court to interfere in the exercise of the prosecutorial discretion only where it considers that the “interests of justice require it” to do so. It is clear that Whealy J did not consider that the interests of justice required him to dismiss the charge.
Mr Curtis’ submissions did not persuade me that the interests of justice required the dismissal of the charge. The submissions did not identify the substantive offence said to be available on the evidence. As already noted, on the Crown case, Mr Hartman was the insider. The Crown has not sought to prove that Mr Curtis possessed the inside information; on the contrary, the evidence is that Mr Hartman did not communicate that information to Mr Curtis in terms but, rather, sent him specific instructions (such as “buy 32,500 ERA at [such and such a price]”). Accordingly, it is not clear what substantive offence under s 1043A could have been charged. Mr Hartman pleaded guilty to “tipping” offences contrary to s 1043A(2) in respect of the information he provided to Mr Curtis. It may be accepted that Mr Hartman could, instead, have been charged with conspiracy but Mr Curtis could not have been charged with tipping: he was the person alleged to have received the communication.
It is correct, as submitted by Mr Curtis, that the conspiracy charge does not require the Crown to prove that Mr Curtis actually possessed inside information at any point in time. That is no doubt one of the considerations to which the Commonwealth Director of Public Prosecutions had regard in deciding to charge conspiracy. I do not think it follows that there is any unfairness or prejudice to Mr Curtis. In alleging that he participated in a conspiracy to commit the offence of insider procuring, the Crown did have to prove that he knew or believed he would be procured to acquire or dispose of relevant financial products by Mr Hartman at a time when Mr Hartman would be in possession of inside information.
In my view, a charge of conspiracy in the present case served rather than subverted the interests of justice. That view is of course premised on the correctness of my conclusion that there was evidence upon which the jury could convict Mr Curtis of the offence charged. This was a case in which, unlike Hoar, the case to support the charge of conspiracy was relatively simple, whereas a case to support 45 substantive offences (or even a subset of them) would have been significantly lengthier and more complex. Indeed it might be thought that this was a paradigm case for a charge of conspiracy to be preferred.
In all the circumstances, I was not persuaded that the interests of justice required the Court to dismiss the charge. For those reasons, I dismissed the application invoking s 11.5(6) of the Code.
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