R v Sansom
[2018] NZHC 1988
•7 August 2018
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE
CRI-2017-004-004038
[2018] NZHC 1988
THE QUEEN v
HAMISH MARK SANSOM
Hearing: 23 May 2018 Appearances:
Nick Williams and Margot Gatland for the Crown David Jones QC and Hannah Drury for the Defendant
Judgment:
7 August 2018
JUDGMENT OF MOORE J
This judgment was delivered by me on 7 August 2018 at 11:00 am pursuant to Rule 11.5 of the High Court Rules.
Registrar/ Deputy Registrar Date:
R v SANSOM [2018] NZHC 1988 [7 August 2018]
Introduction
[1] The defendant, Hamish Marc Sansom, faces one charge of insider trading under ss 241 and 244 of the Financial Markets Conduct Act 2013 (“the FMCA”). The Crown alleges that Mr Sansom, on advice from a former colleague, Jeffrey Honey, used internal company information in deciding to sell 15,000 shares for a total of
$51,150.
[2] Following a trial in March this year the jury was unable to reach a verdict. A re-trial has been set down for two weeks beginning 10 September 2018.
[3] Originally, Mr Sansom was charged with Mr Honey. Mr Honey pleaded guilty to one charge of insider trading on 11 April 2017, and has been sentenced to six months’ home detention. The Crown has now made an application under s 49 of the Evidence Act 2006 (“the Act”) to admit evidence of Mr Honey’s conviction. The application is opposed.
[4] At Mr Sansom’s first trial the Crown did not seek to admit Mr Honey’s conviction. It now says Mr Honey’s certificate of conviction will conclusively prove he committed the offence and that two essential elements of Mr Sansom’s charge, namely that the information was material information and not generally available to the market, will thus be proved.
Factual background
[5] The alleged offending centres around Eroad Ltd (“Eroad”), which operates a transport technology business in New Zealand, Australia and the United States. It was listed on the NZX through an initial public offering (“IPO”) on 15 August 2014.
[6] From September 2013 to April 2015 Mr Sansom worked as the company’s Product and Portfolio Manager, reporting directly to the CEO. During his employment he accumulated a substantial shareholding in Eroad.
[7] Mr Honey was employed on 13 October 2014, having been recruited by Mr Sansom. He reported directly to Mr Sansom.
[8] The Crown alleges that on 22 September 2015 Mr Honey sent Mr Sansom a photograph by MMS of the internal and confidential Eroad Dashboard showing its financial performance in the United States market. The message was accompanied by a text message which read: “US sales not doing to [sic] we’ll [sic], time to sell up? Confidential obviously”. Mr Sansom, who by that time was no longer working at Eroad, replied two minutes later saying, “You’re a bad boy … but thanks!” A minute later, he texted saying “Was going to sell down significantly anyway”.
[9] Two days later, Mr Sansom sold 15,000 shares. Four days later, Eroad released a statement via the NZX entitled “Eroad signals lower FY16 results from accelerated US expansion”. Its forecast net profit before tax for the year ending 31 March 2016 was reduced to $0.5 million, from the previously forecast $5.3 million. Eroad’s share price fell by 10.2 per cent, and by Friday 2 October 2015 had fallen by 21.7 per cent.
[10] On 1 October 2015, Mr Honey sent a picture to Mr Sansom of the share price following the announcement, adding “I hope you sold”. Mr Sansom relied “Yep I sold as much as I could, but still have lots left!! Not many buyers out there”.
Mr Honey’s conviction
[11] Mr Honey pleaded guilty on 11 April 2017 to one charge of advising another person, as an information insider (being a person with material information not generally available to the market, and knowing those facts), to trade financial products of a listed issuer.1
[12] The “Offence” section of his conviction certificate from the permanent Court record states:
“On the 22nd day of September 2015 at Auckland being an information insider of a listed issuer, advised or encouraged another person to trade quoted financial products of the listed issuer knowing that the information was material information that was not generally available to the market.
Particulars: Sent to Hamish Sansom an MMS containing an internal and confidential Eroad Limited report entitled ‘US Sales – Executive Summary’ and an accompanying text message stating ‘US sales not doing to we’ll, time to sell up? Confidential obviously’.”
1 Financial Markets Conduct Act 2013, ss 243(1)(a) and 244.
Section 49
Section 49 generally
[13] Section 49 of the Act is a complex and controversial provision. Section 49(1) provides for two things:
(a)the fact of conviction is admissible, if not excluded by any other provision in the Act; and
(b)the conviction is conclusive proof the person committed the offence.
[14] Its effect is limited by s 49(2). Section 49(2)(a) provides that the Judge may, in exceptional circumstances, permit a party to the proceeding to offer evidence tending to prove the person convicted did not commit the offence for which the person was convicted. Under s 49(2)(b) the Judge, if satisfied it is appropriate to do so, may in exceptional circumstances direct that the issue of whether the person committed the offence be determined without reference to s 49(1).
[15]In full s 49 provides:
“49 Conviction as evidence in criminal proceedings
(1)Evidence of the fact that a person has been convicted of an offence is, if not excluded by any other provision of this Act, admissible in a criminal proceeding and proof that the person has been convicted of that offence is conclusive proof that the person committed the offence.
(2)Despite subsection (1), if the conviction of a person is proved under that subsection, the Judge may, in exceptional circumstances,—
(a)permit a party to the proceeding to offer evidence tending to prove that the person convicted did not commit the offence for which the person was convicted; and
(b)if satisfied that it is appropriate to do so, direct that the issue whether the person committed the offence be determined without reference to that subsection.
(3)A party to a criminal proceeding who wishes to offer evidence of the fact that a person has been convicted of an offence must first inform the Judge of the purpose for which the evidence is to be offered.”
[16]Courtney J recently restated the purpose and tension underlying s 49:2
“The purpose of s 49 is to provide a convenient means of proving offences already established to the criminal standard of proof. This prevents the criminal system being “vexed by collateral challenges to concluded determinations of criminal responsibility, with potentially inconsistent outcomes”.3
… Section 49 must, however, be interpreted in light of the fair trial rights recognised in s 25 of the Bill of Rights, particularly the right under s 25(e) to present a defence.4”
[17]This reflects four key policy considerations underpinning the provision:5
(a)time and expense would be saved in barring re-litigation of matters that have already been resolved;
(b)evidence of guilt will usually be relevant and highly probative because of the high criminal standard of proof involved;
(c)excluding evidence of convictions would be inconsistent with the principle that a conviction is a sufficient basis to impose grave penalties; and
(d)the need to avoid subjecting the question of a person’s guilt or innocence to potentially conflicting verdicts by separate juries.
The interplay between sections 8 and 49
[18] Section 49(1) contemplates that evidence of a conviction may be excluded by other provisions of the Act. But the interplay between ss 8 and 49 is yet to be settled. As Courtney J observed in Broome, early cases on this question approached it on the basis the gateway provisions, ss 7 and 8, precede the application of s 49.6
2 Broome v R [2017] NZCA 575 at [15]-[16].
3 Morton v R [2016] NZSC 51, [2017] 1 NZLR 1 at [91] per Elias CJ.
4 At [36], [63]-[65] and [67] per William Young and O'Regan JJ, [109], [114] and [117] per Elias CJ and [132] per Glazebrook and Arnold JJ; and Va'afuti v R [2017] NZSC 142 at [18].
5 Morton v R [2015] NZCA 322 at [47]-[48], citing Law Commission Evidence: Reform of the Law
(NZLC R55, Vol 1, 1999) at [233] and R v Morton [2015] NZHC 990 at [19].
6 See for example R v Bouavong [2012] NZHC 524 at [60]; R v Taniwha [2012] NZCA 605 at [21],
R v Tanginoa [2012] NZHC 3121 at [38], R v Carc [2014] NZHC 709 at [105].
[19] But as she went on to observe, in two separate decisions the Supreme Court has identified uncertainty regarding the relationship between the two provisions and explicitly declined to resolve it. First, in Morton v R, William Young and O’Regan JJ commented:7
“Section 49(1) applies only “if not excluded by any other provision of this Act”. We see this as rendering s 49 subject to more specific provisions of the Act, for instance as to propensity and veracity. As well, it might also bring into play s 8 which deals with the admissibility of evidence which may have an unfairly prejudicial effect on proceedings.
…
As we have noted, s 8 of the Evidence Act is an admissibility provision and therefore does not control the weight (conclusive or otherwise) to be given to evidence once admitted. In this appeal there is no issue as to the admissibility of the convictions. Therefore, the only escape from the s 49(1) prohibition on calling inconsistent evidence is via a finding of exceptional circumstances under s 49(2). In cases where there is no practical necessity for evidence to be given as to the prior conviction, s 8 might provide a mechanism for exclusion on the basis of the risk that such evidence would have an unfairly prejudicial effect on the proceedings. There is, however, likewise scope for the view that an effect which is mandated by s 49(1) should not be regarded as unfairly prejudicial if the circumstances are not exceptional. Because it is not relevant to the determination of this appeal, we leave for another day the relationship between ss 8 and 49.”
[20]Acknowledging these comments, the Supreme Court in Va’afuti v R
concluded:8
“We do not need to decide this issue either because of the view we take on the application of s 49 in this case. In any event, there would be no reason under s 8 to exclude evidence of the convictions on charges 1 and 3 and indeed Mr Va'afuti did not seriously challenge the admissibility of the convictions on those charges.”
[21]Likewise, in Broome v R the Court of Appeal found:9
“In both Morton v R and Va'afuti v R, however, the Supreme Court declined to determine the issue because the cases could be decided on the basis of s 49 alone. Likewise, we consider that this is not the right case to determine the question of how ss 8 and 49 relate; as we discuss next, we are satisfied that unfair prejudice will not result from admitting evidence of Mr Aononu's conviction.”
7 Morton v R, above n 3, at [9], [14] (footnotes omitted, emphasis added).
8 Va’afuti v R, above n 4, at [16].
9 Broome v R, above n 2, at [18].
[22] The uncertainty underpinning these decisions is the stage at which s 8 is to be taken into account in determining the admissibility of convictions, if at all. The question flagged by William Young and O’Regan JJ is whether, in the context of the in-built exceptional circumstances test in s 49, an effect mandated by s 49(1) (admissibility or proof of offending) can be unfairly prejudicial if the exceptional circumstances standard is not met.
What needs to be resolved?
[23] Mr Jones QC, for Mr Sansom, argues Mr Honey’s conviction has no relevance to any factual issue at the re-trial. None of the elements of the offence Mr Honey has pleaded guilty to are at issue, and to the extent elements of Mr Sansom’s charge are proven by Mr Honey’s conviction, the facts of Mr Honey’s offending and Mr Sansom’s alleged offending satisfying those elements are different. Moreover, Mr Jones submits any probative value is outweighed by the unfair prejudice which would arise from the admission of Mr Honey’s conviction.
[24] In short, he submits this is the sort of case contemplated by William Young and O’Regan JJ in Morton v R: where there is no practical necessity for evidence to be given as to the prior conviction. Thus s 8 provides a mechanism for exclusion on the basis of the risk that such evidence would have an unfairly prejudicial effect on the proceedings.
[25] Mr Jones does not advance a case for exceptional circumstances under s 49(2). This is because the defence case does not assert that Mr Honey did not commit the offence he was convicted of.
[26] Mr Williams, for the Crown, submits admission of the conviction will conclusively prove that not only was the information shared material information, but also it was information not generally available to the market. However he notes it will still be for the Crown to prove the mens rea elements of the offence at trial. He thus submits there is no unfair prejudice because admission will not have the effect of closing all live issues at trial.
[27]There are three key issues in dispute on this application:
(a)What is the relevance of Mr Honey’s conviction?
(b)What is conclusively proved by Mr Honey’s conviction? and
(c)Will any unfair prejudice arise from the admission of the certificate of conviction?
[28]I turn now to consider these issues.
What is the relevance of Mr Honey’s conviction?
[29] Section 7 confirms the fundamental principle that all relevant evidence is admissible and as a corollary, evidence which is not relevant is not admissible. Evidence is relevant if it has a tendency to prove or disprove anything that is of consequence to the determination of the proceeding.10
[30] In terms of the materiality of Mr Honey’s conviction, as Elias CJ stated in Morton v R, s 49 is to apply in a wide range of circumstances, but is “concerned with proof of issues in proceedings”.11 Here, Mr Honey’s conviction is relevant because it forms part of the relevant background to Mr Sansom’s charge. It is presumptively admissible and proof of Mr Honey’s offending in Mr Sansom’s trial.
What is conclusively proven by Mr Honey’s conviction?
[31] The Crown submits that the conviction also proves two elements which form an important part of the defence case. The elements of the charge faced by Mr Sansom are:
(a)there was a listed issuer, namely Eroad;
(b)Mr Sansom was an information insider in that he had information relating to the listed issuer that was:
10 Evidence Act 2006, s 7(3).
11 Morton v R, above n 3, at [98].
(i)material; and
(ii)not generally available to the market;
(c)Mr Sansom traded quoted financial products as defined in s 6 by selling 15,000 shares;
(d)he knew the information was material information; and
(e)he knew the information was not generally available to the market.
[32]At Mr Sansom’s first trial it was not in dispute that:
(a)on 22 September 2015, Mr Honey sent Mr Sansom an MMS containing an internal and confidential Eroad report entitled “US Sales – Executive Summary” and an accompanying text message referred to above; and
(b)on 24 September 2015, Mr Sansom sold 15,000 Eroad shares at $3.41 per share via the ASB Securities online trading platform.
[33] The key issues were whether the information received by Mr Sansom was material, and whether it was generally available. The Crown called an expert witness to address these issues. Mr Jones advises that at the re-trial, as at the first trial, the two central aspects of the defence case will be that:
(a)the information received by Mr Sansom was not material, because the MMS image was indistinct, and Mr Sansom saw only a limited part of it; and
(b)the information was generally available to the market.
[34] He submits Mr Honey’s conviction does not conclusively prove elements (b)(i) and (ii) of the charge faced by Mr Sansom. While the language is the same, proof of Mr Sansom’s status as an information insider requires a different inquiry from that involving Mr Honey’s status as an information insider.
[35]I agree with Mr Jones.
Mr Honey’s conviction has not conclusively proven that Mr Sansom is an information insider
[36] In R v Armstrong, I considered what matters are proved by the operation of s 49. I determined:12
“Section 49 provides for the admissibility of evidence a person has been convicted of an offence, and that the conviction is conclusive proof they committed the offence. … Where proof of the conviction is at issue, a document showing the mere fact of conviction will need to be furnished. In other cases, where what is sought to be established is the commission of the offence, the matters which will be proven will be those necessary to establish the conviction, and the commission of the underlying offence. That will logically include the elements of the offence, and essential facts which satisfy those elements.”
[37] As Cooke J stated in Matthews v Department of Labour, a “plea cannot be taken as an admission of … particulars, for they [form] no part of the charge.”13 This accords with the policy of s 49 that matters proven beyond reasonable doubt do not need to be the subject of dispute and re-litigation.
[38] With that principle in mind, it is necessary to examine the elements of the offence Mr Honey pleaded guilty to, and which are presumptively proved under s 49(1). These are:
(a)there was a listed issuer, namely Eroad;
(b)Mr Honey was an information insider in that he had information relating to the listed issuer that was (and that he knew or ought to have known was):
(i)material; and
(ii)not generally available to the market.
12 R v Armstrong [2018] NZHC 504 at [137].
13 Matthews v Department of Labour [1984] 2 NZLR 400 (CA) at 407.
(c)Mr Honey advised or encouraged another person, namely Mr Sansom, to trade quoted financial products of the listed issuer (shares in Eroad);
(d)Mr Honey knew the information was material information; and
(e)Mr Honey knew the information was not generally available to the market.
[39] An essential element in both charges, “insider trading” (under ss 241 and 244) and “insider advice” (under ss 243 and 244), is that the person is an information insider in terms of s 234(1) and (4):
“234 Meaning of information insider, inside information, and adviser
(1)In this Part, a person is an information insider of a listed issuer if that person—
(a)has material information relating to the listed issuer that is not generally available to the market; and
(b)knows or ought reasonably to know that the information is material information; and
(c)knows or ought reasonably to know that the information is not generally available to the market.
…
(4)In this Part, inside information means—
(a)the information in respect of which a person is an information insider of the listed issuer in question; or
(b)in the case of quoted derivatives, the information in respect of which a person is an information insider in relation to the derivatives in question.”
[40] There is, however, a fundamental difference in the way in which the two men are information insiders. I agree with Mr Jones that in respect of Mr Honey’s offending the offence was complete when he advised or encouraged Mr Sansom to trade his shares in Eroad. It is not an element of the offence that Mr Honey shared particular information which was material and not generally available to the market. Moreover, it is not the case that the information held by Mr Honey for the purpose of
his conviction is necessarily the same information held by Mr Sansom for the purpose of the charge he faces, although it is accepted he did receive a MMS from Mr Honey.
[41] Mr Honey, as an employee of Eroad, was an information insider due to his role in the company, with access to a significant amount of material information which was not generally available to the market. That is why his MMS and text message was sufficient to satisfy the actus reus of an offence under ss 243 and 244. In contrast, for the purposes of the charge he faces, Mr Sansom is an information insider only insofar as he received information from Mr Honey (and that information is material and not generally available to the market).
[42] Therefore the reference in the “offences details” section of Mr Honey’s conviction certificate to the MMS he sent to Mr Sansom containing an internal and confidential Eroad report is not a matter which has been conclusively proven in accordance with s 49(1). To the extent these particulars suggest the information sent by MMS was material and confidential, as I determined in R v Armstrong, particulars of a charge are not captured by s 49(1) either on the ordinary meaning of conviction or within the policy of the provision.14 Accordingly, the Crown cannot rely on Mr Honey’s conviction as conclusive proof that Mr Sansom received information which was material and not generally available to the market.
Are the particulars of Mr Honey’s conviction certificate admissible?
[43] Whether particulars are otherwise admissible does not fall to be determined under s 49, but under the general rules of admissibility including ss 7 and 8.15 Therefore while it is not necessary to resolve the application of s 8 to s 49, it is otherwise relevant to the particulars.
[44] I do not think there is a risk of an unfairly prejudicial effect that will outweigh the probative value of the particulars. They will not provide conclusive proof; they will merely bolster the Crown case that Mr Honey sent the information referred to by MMS to Mr Sansom. Because the defence does not dispute that Mr Honey sent an
14 R v Armstrong, above n 12, at [135]-[142], [149].
15 At [149].
MMS and an accompanying text message to Mr Sansom, no unfairness can arise from the presence of the particulars. They do not impact the two prongs of the defence Mr Jones intends to run. It will still be available to the defence to argue that despite the fact Mr Honey sent this information to Mr Sansom, Mr Sansom was not an information insider, either because the MMS was pixelated or because by that time the information was generally available to the public.
Conclusion
[45] Mr Honey’s conviction is admissible and is conclusive proof of the essential elements of Mr Honey’s offence. However it is not conclusive proof of the matters the Crown submits it is. The matters at issue at Mr Sansom’s trial, namely whether the information he received was:
(a)material; and
(b)not generally available to the public,
are not conclusively proved by Mr Honey’s conviction.
Result
[46] The certificate of conviction is admissible as conclusive proof of Mr Honey’s conviction but is not proof of and may not be used as proof at Mr Sansom’s trial that the information he received was material information that was not generally available to the market.
Moore J
Solicitors/Counsel:
Crown Solicitor, Auckland Serious Fraud Office, Auckland Mr Jones QC, Auckland
Ms Drury, Auckland
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