R v Sansom
[2018] NZHC 542
•19 March 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 542
THE QUEEN v
HAMISH MARK SANSOM
Hearing: 19 March 2018 Appearances:
N Williams and M Gatland for the Crown
D P H Jones QC and H Drury for the Defendant
Judgment:
19 March 2018
Reasons:
27 March 2018
REASONS JUDGMENT OF HINTON J
[re legal issue at commencement of trial]
Counsel/Solicitors:
Meredith Connell, Auckland
D P H Jones, Queens Counsel, Auckland
R v HAMISH MARK SANSOM [2018] NZHC 542 [19 March 2018]
[1] Before the Crown opened in this jury trial, I ruled on what was considered to be an important point for the trial, that on a charge of insider conduct, the Crown does not have to prove a causal connection between the possession of inside information and a trade.
[2]These are my reasons.
Background
[3] Mr Sansom faces one charge of insider conduct under s 241(1) and s 244 of the Financial Markets Conduct Act 2013 (the Act).
[4] The particulars recorded in the charging document are that after receiving from Jeffrey Honey 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, (sic) time to sell up? Confidential obviously”, Mr Sansom sold 15,000 ERoad Limited shares at $3.41.
[5] Mr Jones QC, for Mr Sansom, signalled as part of the defence case that Mr Sansom was already intending to sell his ERoad shares and there is no causal connection between the Honey MMS/text and the trade by Mr Sansom.
[6] The Crown position is that there is no requirement for it to prove a causal connection between the information described in the particulars of the charge and the defendant’s trading. The Crown says it would therefore not amount to a defence if Mr Sansom were able to establish that he was already intending to sell his ERoad shares.
Analysis
[7]Sub-part 2 of part 5 of the Act is headed “Insider Trading” with a subheading
Insider Conduct Prohibited. Section 240(1) of the Act states:
240 Prohibition on insider conduct
(1)A person must not do any of the things set out in any of sections 241(1), 242(1), and 243(1) if the person is an information insider of the listed issuer.
[8]The relevant prohibition in this case is s 241 of the Act which states:
241 Information insider must not trade
(1)An information insider of a listed issuer must not trade financial products of the listed issuer.
…
(3)In this subpart and subpart 3, trade-
(a)means acquire or dispose of; but
(b)does not include acquire, or dispose of, by inheritance or gift.
[9] Under s 241(1), once a person is an information insider, as defined in s 234 (ie someone who has material information relating to the listed issuer that is not generally available to the market and the person knows or ought reasonably to know so), they are prohibited from trading.
[10]A trade in breach of s 241(1) leads to civil liability under s 385 of the Act.
[11] There is nothing in s 241(1) and the accompanying provisions, to indicate that the person’s intentions, (including their intention to trade or not before they became an information insider) are relevant, or that there has to be any causal connection between the information and the trade.
[12] Section 244 of the Act makes insider trading under s 241 a criminal offence if the person knows (as opposed to knows or ought reasonably to know) that the information is material information and that the information is not generally available to the market.
[13] Beyond restricting liability to situations of actual knowledge that the information is material and not generally available to the market, s 244 makes no change to the civil liability regime.
[14] At ss 245 to 256 of the Act, there are set out specific situations when the prohibition on insider conduct does not apply, including exceptions for trading required by rule of law and for an agent executing a trading instruction. Sections 257 to 261 then set out defences to insider conduct, including where the person did not know they had traded the financial products.
[15] None of these exceptions or defences extends to or even suggests a “causal connection” defence.
[16] On a plain reading of the words of the Act, on a charge of insider conduct under s 244 the Crown does not have to prove a connection between the information and the trading.
[17] While there is no case law under the insider conduct provisions of the 2013 Act, the plain reading interpretation is borne out by case law and commentary under the earlier regime of the Securities Markets Act 1988.1 The 1988 Act contained substantially the same provisions, including a criminal prohibition essentially identical to s 244, introduced under the Securities Markets Amendment Act 2006.
[18] The case law and commentary cited above is in the context of the civil prohibition. Mr Jones submits that the authorities cited are therefore not relevant. However, for the same reasons I have already stated, I do not agree. It is clear that s 244 imposes criminal liability when the civil thresholds are met, except the defendant must have actual knowledge. For present purposes, I consider the cited authorities are clearly relevant.
[19] In R v Farris, Hall J in addressing s 1043A of the Australian Corporations Act 2001 (which for present purposes is to the same effect as the provisions in the Act) relevantly stated:2
[173] An offence against s 1043A does not require that it be shown that there was any causal connection between possession of the information and the
1 Victoria Stace Securities Law in New Zealand (LexisNexis, Wellington, 2010) at 295; Haylock v Southern Petroleum NL [2003] 2 NZLR 175 (CA); Haylock v Patel [2012] 1 NZLR 665 (CA) where the Court of Appeal said they agreed there is no requirement to show a link between the possession of inside information and its use.
2 R v Farris [2015] WASC 251.
decision to sell the shares. It may be that a person who commits the offence has some legitimate reason for wanting to sell his shares and the fact that he is in possession of information which gives him an advantage over other participants in the market is not material to his decision. Motive or use are not elements of the offence, though they may be relevant to sentence.
[174] The effect of s 1043A is to create a class of persons who by reason of their possession of inside information are prohibited from trading: Mansfield v The Queen (2012) 247 CLR 86 [1]. If a person possesses information, that he knows is not generally available and is price sensitive, the prohibition on trading will apply whether or not he consciously brings to mind that information and its nature at the time he makes a decision to trade in shares.
…
[177] The defence submission that the element of knowledge requires that the offender be consciously aware of the nature of the information that he possessed at the moment in time that he placed orders to sell shares is misconceived. For the reasons I have stated such an interpretation is inconsistent both with the structure of s 1043A and its purpose. It would be all too easy for a person charged with such an offence to claim that they had other reasons for wishing to sell their shares and did not consciously bring to mind the nature of the information that they possessed.
[20] To similar effect, the Australian text Securities and Financial Services Law, records:3
The prohibition is triggered by possession, not use
17.12 The prohibition in s 1043A is triggered by the mere possession of such information, rather than focusing on the “use” of that information. The insider trading prohibition applies where a person possesses inside information, and is not concerned with whether that person uses that information in making a trading decision. In other words, a person is prohibited from dealing in a Div 3 financial product while he or she possesses non-public price-sensitive information in respect of that product, even if he or she would have traded irrespective of that information or is trading for a hedging purpose rather than a profit-making purpose.
[21]These authorities all support the plain reading of the statute recorded above.
[22] Mr Jones acknowledges that there is no requirement for the Crown to prove a causative link on the face of the relevant provisions. He says the market fairness rationale behind the legislation dictates that there must be a causal connection between
3 Robert Baxt, Ashley Black and Pamela F Hanrahan Securities and Financial Services Law (8th ed, LexisNexis, Chatswood (NSW), 2012.
the information advantage and the sale. Without it, he says there is no unfairness. He submits that the requirement for the Crown to prove causation is inferentially available because of the fairness driver in the legislation.
[23] This same argument was in effect advanced in Haylock v Southern Petroleum NL4 and firmly rejected.
[24] I agree with Mr Williams that the plain reading conclusion is supported by, not contradicted by, the “market fairness rationale” upon which the legislation was based in part. The market fairness rationale maintains that all investors in a market should have an equal opportunity to obtain and evaluate information relevant to their trading decisions and is directed at preventing an insider having an information advantage not derived from research or analysis of publicly available information. It is not part of the rationale that the person with inside information must be proved to have relied on it. The point is that the same material information should be available to all.
[25] In any event, the policy reasons behind the legislation strongly support the plain reading of the Act that the Crown does not need to prove a causal connection. Such a requirement would seriously undermine enforcement of the insider trading prohibitions. It would be exceedingly difficult in any case, to prove actual reliance on the information received.
[26] As the Court of Appeal said in Haylock v Southern Petroleum NL, there is no need to read in qualifications that are absent on the plain meaning of the words used. The provisions as drafted are workable and avoid the complexities inherent in proof of motivation or influence.5
Conclusion
[27] An offence against s 244 of the Financial Markets Conduct Act 2013 does not require proof of a causal connection between possession of inside information and the decision to sell shares. Correspondingly, it would not amount to a defence for
4 Haylock v Southern Petroleum NL [2003] 2 NZLR 175 (CA).
5 At [49].
Mr Sansom to establish that, prior to receiving the information described in the particulars of the charge, he was already intending to sell his ERoad shares, or that his decision to sell was uninfluenced by the information received.
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Hinton J
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