Financial Markets Authority v Warminger - [2016] NZHC 1193

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

CIV-2015-404-001727 [2016] NZHC 1193

UNDER the Securities Markets Act 1988

BETWEEN

FINANCIAL MARKETS AUTHORITY Plaintiff

AND

MARK WARMINGER Defendant

Hearing: 27 May 2016

Counsel:

JBM Smith QC and NR Williams for Plaintiff
M Heron QC and A Ho for Defendant

Judgment:

3 June 2016

JUDGMENT OF ASHER J

This judgment was delivered by me on Friday, 3 June 2016 at 3 pm pursuant to r 11.5 of the High Court Rules.

Registrar/Deputy Registrar

Solicitors/Counsel:
Meredith Connell, Auckland.
Cook Morris Quinn, Auckland. JBM Smith QC, Wellington.
M Heron QC, Auckland.

FINANCIAL MARKETS AUTHORITY v WARMINGER [2016] NZHC 1193 [3 June 2016]

Introduction

[1] The defendant Mark Warminger seeks particulars of the statement of claim of the Financial Markets Authority. This is a civil proceeding for a pecuniary penalty under the Securities Markets Act 1988 (“the Act”). Despite being a civil case, where pecuniary penalties are sought, the gravity of this feature adds weight to the need for the claim to be properly and fairly pleaded, to allow defendants to fully understand
and answer the case facing them.1

[2] The section of the Act that is allegedly breached is s 11B:

11B False or misleading appearance of trading, etc

A person must not do, or omit to do, anything if—
(a) the act or omission will have, or is likely to have, the effect of creating, or causing the creation of, a false or misleading appearance—
(i) with respect to the extent of active trading in the securities of a
public issuer; or
(ii) with respect to the supply of, demand for, price for trading in, or value of those securities; and

(b) the person knows or ought reasonably to know that the person’s act or
omission will, or is likely to have, that effect.

[3] It has been held in the Western Australian Court of Appeal in Braysich v R in respect of the equivalent provision:2

In my opinion, it is apparent, from the statutory context and the parliamentary intention in enacting s 998(1), that a person will create a false or misleading appearance of “active trading” in securities for the purposes of the first limb of s 998(2) if, relevantly:

(a) The person enters into, or carries out, either directly or indirectly, any transaction or transactions of sale or purchase which do not reflect the forces of genuine supply and demand; that is, the transaction or transactions are undertaken for the purpose of establishing an artificial market or price; and

(b) The transaction or transactions in question constitute or induce a pattern of new trading in volumes or at prices that would not otherwise have occurred.

1 Commerce Commission v Southpower Ltd (1997) 8 TCLR 6 (HC) at 11. This was in the context of a Commerce Commission claim, but the same basic principle should apply where the Financial Markets Authority seeks a serious pecuniary penalty.
2 Braysich v R [2009] WASCA 178, (2009) 238 FLR 1 at [101]; overturned…

Grounds of appeal

[14] The appellant contends that the primary judge erred in finding that the respondent had discharged the onus of establishing the matters required under the relevant provision.

[15] It was submitted that his Honour failed to give adequate weight to the evidence of the second witness, and that the findings of fact were not reasonably open on the material before the Court.

[16] The respondent, for its part, submits that no error is disclosed, and that the conclusions reached were well within the range of outcomes available to the primary judge.

Consideration

[17] It is convenient to deal first with the question of construction, as the resolution of that issue informs the remaining grounds advanced by the appellant.

[18] For the reasons that follow, we are of the view that the appeal should be allowed in part and the matter remitted for further determination.

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Details

Case: [2016] NZHC 1193
Decision Date: 3 June 2016

CaseChat Overview and Summary

In the case of Financial Markets Authority v Warminger, the plaintiff, Financial Markets Authority, brought a civil action against the defendant, Mark Warminger, seeking pecuniary penalties for alleged breaches of the Securities Markets Act 1988. The central issue in this case was whether the statement of claim sufficiently detailed the nature of the alleged false or misleading appearances created by Warminger's trading activities. The defendant argued that the statement of claim was insufficiently particularised and did not adequately explain how his actions constituted market manipulation under the Act. The court was required to determine whether the defendant's request for particulars was justified and, if so, what form these particulars should take.

The court ruled that while the statement of claim was detailed in describing Warminger's trading activities, it fell short in explicitly connecting these activities to the creation of false or misleading appearances. The court acknowledged that the defendant should not be left to infer how his conduct constituted market manipulation. It was deemed essential that the statement of claim clearly articulate how Warminger's actions misled the market. The court, therefore, allowed the request for particulars but on modified terms. It ordered that the statement of claim be amended to specify how Warminger's trades created false or misleading appearances and to detail the facts and circumstances from which it was alleged he ought to have known the effect of his conduct. The court also retained supervision over this aspect of the case to ensure further compliance.

This decision highlights the importance of clear and explicit pleading in civil cases, especially where serious penalties are sought. The court's ruling ensures that the defendant is fully informed of the allegations against him, thereby enabling a fair and just resolution of the dispute.

Orders