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High Court of Australia Transcripts |
Last Updated: 9 May 2012
IN THE HIGH COURT OF AUSTRALIA
Office of the Registry
Perth No P60 of 2011
B e t w e e n -
NIGEL CUNNINGHAM SWIFT MANSFIELD
Appellant
and
THE QUEEN
First Respondent
JOHN KIZON
Second Respondent
Office of the Registry
Perth No P61 of 2011
B e t w e e n -
JOHN KIZON
Appellant
and
THE QUEEN
First Respondent
NIGEL CUNNINGHAM SWIFT MANSFIELD
Second Respondent
HAYNE J
HEYDON J
CRENNAN J
KIEFEL
J
BELL J
TRANSCRIPT OF PROCEEDINGS
AT CANBERRA ON WEDNESDAY, 9 MAY 2012, AT 10.17 AM
Copyright in the High Court of Australia
____________________
MR M.L. BENNETT: If it please the Court, with my friend, MS L. RISTIVOJEVIC, I appear for the appellant in P60 and for the second respondent in P61. (instructed by Bennett + Co)
MR S.A. SHIRREFS, SC: If the Court pleases, I appear with my learned junior, MR S.P. GIFFORD, for the appellant in P61 and for the second respondent in P60. (instructed by Holborn Lenhoff Massey)
MR W.B. ZICHY-WOINARSKI, QC: If your Honours please, I appear with my learned friend, MS R.V.C. FOGLIANI, in both matters on behalf of the first respondent and, your Honours, can I say I do not require the Zichy-Woinarski; Woinarski is more than sufficient? (instructed by Commonwealth Director of Public Prosecutions)
HAYNE J: Thank you. Yes, Mr Bennett.
MR BENNETT: Can I take your Honours to the central point that occupies both appeals, which is the meaning of the word “information” where it appears in the insider trading provisions and relevantly, there being no distinction between the pre-11 March 2002 statute and the preceding statute, 1043A would be the section that I take your Honours to. Your Honours know that the policy rationales that underlie the introduction of insider trading provisions into Australia were analysed by the Court of Criminal Appeal in R v Firns which your Honours find relevantly in volume 2 of the two volume book of legislation, authorities and relevant material that the parties have prepared, the authorised report for which is [2001] NSWCCA 191; (2001) 51 NSWLR 548, and the reasons for decision of President Mason at page 557, your Honours find that at page 458 of the bundle, commencing at 457. The Griffiths Report which - - -
HEYDON J: I am very laudatory about this brisk approach, but you have just gone a bit fast for me. You have just given two - - -
MR BENNETT: If your Honours turn up volume 2, page 457.
HEYDON J: I have that.
MR BENNETT: Your Honours see at paragraph 43, his Honour identifies and draws from the Griffiths Report the four policy rationales that underlie the introduction of insider trading or that are advocated as a basis for the control of insider trading: fairness, that is, as equal access to information between market participants; fiduciary duty, which your Honours will know as the underpinning notion in the United States jurisdiction; economic efficiency, that is damage to the market itself; and corporate injury.
His Honour identifies that the explanatory memorandum, paragraph 49 on page 458, picks up both the unfairness and the market efficiency approach. I pause to say that in the court below when his Honour Appeal Justice Buss deals with this matter – and your Honours find this in volume 9 of the appeal book at page 2871, paragraph 49 – his Honour drops out corporate injury as a policy rationale and introduces misappropriation of information in lieu of corporate injury, misappropriation of information being entirely analogous to the fiduciary duty point.
Can I say that when one tracks through the Corporations Act one sees these policy rationales exhibited in different ways? Your Honours know that information is dealt with in the director and officer duties in section 183 which provides the civil liability for misuse of information by a director or officer, and section 184(3) which provides criminal consequences for dishonest use of information by a director and officer. We would submit, your Honours, that is plainly an embodiment of the fiduciary duty misappropriation theory in that context.
HAYNE J: Be it so, how does that bear on the problem that we now have?
MR BENNETT: Consistency of treatment of the concept of information within the statute as a whole is what we would submit, your Honours. If I can just develop that by going to the next aspect by which the Corporations Act deals with information. Your Honours know that to be the control of dissemination of information by listed authorities which is picked up in section 674. I should import as an aside to mention that I note that your Honours had occasion to consider the concept of a listed corporation having an obligation to disclose information when it becomes aware of information when your Honours, in March of this year, heard P44 and P45 of 2011, the Forrest and Fortescue v ASIC matters. Your Honours looked at the question of whether that information is subjective or objective and had some debate about - - -
HAYNE J: But here we have a Division in which “information” is specially defined. What are we gaining by looking at other and different uses of the word elsewhere in the Act?
MR BENNETT: Your Honour is right that it is specially defined, but it is specially defined, we would submit, to extend its ordinary meaning and not to give it a specialised meaning for Part 7.10, Division 3. In the context of the Act as a whole, one starts with analysing the ordinary meaning of “information”, which we take not to be in contention having read my friend’s submissions and outline that the ordinary meaning should be adopted, and that includes, we would say, as defined to mean knowledge of facts or factual knowledge imparted by somebody, and it is extended by the extended definitions of suppositions that are, in other matters, insufficiently definite to extend to the reasoning process of the recipient of factual knowledge who then makes suppositions based upon that factual knowledge that is conveyed.
This case raises a paradigm consideration where the material conveyed and the particulars relied upon by the Crown at the trial were complete falsehoods.
CRENNAN J: Why cannot a supposition arise otherwise than being based on factual information?
MR BENNETT: Firstly, because the concept of a - - -
CRENNAN J: What about a rumour? There are all sorts of ways in which a person may suppose something may happen?
MR BENNETT: There are at least two answers to what your Honour poses. The first, if I can just identify it and then turn to the substantive answer, is to say that the issue of supposition does not arise in this case. The Crown never contended that there was a supposition. They never sought to rely upon a supposition. They gave particulars which identified sharply alleged matters of factual knowledge. Packers bought 4.9 per cent of AdultShop. That is not a supposition, that is a fact that was put.
HAYNE J: You say it has to be true before the provisions bite? Why?
MR BENNETT: Yes, otherwise it does not constitute information. It constitutes a lie.
HAYNE J: Be it so, why should not this division be read as a whole and catching, among others, those who trade on the basis of lies which may have been peddled as part of a market manipulation?
MR BENNETT: Three reasons, we would contend, your Honour. The first is to say that a lie cannot constitute information. It is a fiction, not a fact. The second is to say that one reads Division 3 of part 7.10 in conjunction with Division 2 where the Act specifically proscribes the conduct of disseminating false information to a market. It attacks the wrongdoer, being the disseminator of the false information, and it conveys a civil damages remedy for the victim and that is inconsistent.
KIEFEL J: But an important relevant quality of the information as defined in the definition of “inside information” is that, were it generally available, it might be expected by a reasonable person to have a material effect. It is the effect of the dissemination of the information that gives it the particular quality and which may be seen to have the disruptive effects upon trading and the proper price at which shares are traded. The notion of the effect that the information may have appears to be fairly consistent amongst the various overseas – the European approaches to inside information as well. Once you have considerations of the effect of the information brought into play, the truthfulness or the falsity of the information becomes less relevant, does it not?
MR BENNETT: With respect, no, your Honour. The starting point is to break down the elements of the offence. There are five elements. The first is that there has to be information. The second is that it has to be information that is not generally available. The third is that it has to be information that, if it were available, would have a material effect in the manner statutorily defined on the price or the intention of a person who commonly trades in the securities. The wrongdoer then has to know that it is not generally available and know that it would have a material effect. They are the five separate elements. Logically, the first of the elements is to decide whether you are dealing with information before you get to the effect, which is the materiality issue.
KIEFEL J: Well, perhaps, it should not be broken down. Why does it have to be broken down into a step-by-step approach? Why should not inside information be understood in the way in which it is defined, which is, to take account of its effect? To read it as a whole, as Justice Hayne said, to read the division as a whole and determine what its purposes are.
MR BENNETT: Because it is important in the particular nature of this prohibition, being a criminal sanction within the Act, to identify the constituent elements that give rise to the offence from the wording of the statue and to separate them out, as the Court has done in R v Firns and Rivkin and other cases, to analyse the ingredients of the offence as element, each of which needs to proved beyond reasonable doubt by the Crown. So the Crown has to negative that it is not generally available, has to negative or prove that it has a material effect.
So the element, the onus that lies upon the prosecution in a criminal offence, the starting point, and we say logically the first point is to analyse what is meant by the concept of “information”. If you come back to the issue of why would not you read it separately to include lies, the starting point is, as the second point I was saying is, you read it in conjunction with the legislative scheme that punishes the person who disseminates a false information and conveys a statutory remedy, a civil remedy of damages for the victim, which is inconsistent with the same person who seeks damages under Division 2 of Part 7.10, then being liable for a criminal offence in Division 3. It is a legislative inconsistency that points to a proper construction that information, when dealt with in Division 3, must be a factual reality. It has to exist. If a taxi driver tells me something about a securities in a drive to this Court, it has to exist before it can constitute information otherwise it is a fiction. The ordinary meaning of the word “information” is to convey knowledge of a fact.
CRENNAN J: But the market may be sensitive to a disseminated fiction.
MR BENNETT: I agree, which is why the legislation makes it an offence to disseminate false information as part of the market reading market manipulation dissemination of false information. The market is sensitive to lies and they should be attacked and the legislature identifies who should be attacked and that is the person who disseminates the false information.
HAYNE J: And when the false information is not disseminated to the market but is disseminated to someone who may be innocent or unknowing of the untruth of what is disseminated, why should that person not be within the insider trading information if they know that they have got sensitive information and yet trade on it?
MR BENNETT: That gets to the third of the answers that I said was to your Honour’s point and that is, if one goes back to the policy rationales, there is no market unfairness other than for the victim of the victim relying upon false information unwittingly being duped. They are the person who suffers the loss because they are ignorant of the true facts and they are misled. That is why the legislature gives them a civil right of damages in Division 2 of Part 7.10. There is no market efficiency issue arising from that trading. The market efficiency issue lies in the dissemination of the false information which is why it is an offence to disseminate false information. So the policy rationales that underlie the introduction of the insider trading provisions are not embodied in a prosecution against a victim of a false statement, a deliberately false statement. As her Honour the learned President McLure said in the court below, in this case there are elements of fraudulent misrepresentation made by Day who had his obvious motive of pumping the stock of AdultShop in this regard.
HAYNE J: Exactly, pumping the stock, affecting the market.
MR BENNETT: Entirely.
HAYNE J: Beyond Kizon and Mansfield.
MR BENNETT: We would infer that, yes, your Honour. But to go around and say of your online adult entertainment industry that Packer has bought 4.9 per cent is plainly calculated to excite interest in the market. But to excite interest in the market on the base of a falsity would be an offence by Day, not an offence by Kizon or Mansfield in relying upon what is falsely said to them to induce trading; a feature of this being that Day never gave evidence in the court below in the original trial and does not appear to have been charged with any offence at any stage.
Can I go back then and just show your Honour some of Part 2 of Division 7.10 in volume 1 of the papers. You pick this up at page 41. Your Honours, Division 10 has as its heading “Market misconduct and other prohibited conduct relating to financial products and financial services”. Can I pause there to say that we do not, for Mansfield, see any significance in the change in the legislation in 2002 to broaden the scope of insider trading to financial products as opposed to securities as such and we do not see, relevantly, from my friend, Mr Woinarski’s, submission any identification of a change in principle. My friend submits that this adds force to the fact that information is used in its ordinary sense and we would agree. We would say that there is nothing in the fact that the financial product range broadened by that.
Your Honours see that the offences that are created by Division 2 include market manipulation, false trading and market rigging, but if your Honours move to 1041E your Honours see that there is an offence of a person making statements or providing information that is “false in a material particular”. Then, your Honours, 1041G is for dishonest conduct. Your Honours see in 1041H a civil liability in terms that your Honours would be familiar with, misleading or deceptive, and your Honours in 1041I on page 49 of the bundle a civil action for loss or damage by reason of contravention of 1041E to 1041H, so that a person, such as Mansfield, who suffers loss or damage by reason of the conduct of Day, can recover damages against him.
We would say that the juxtaposition of that civil right of damages with the contention that in the next division a liability is created for part of Mansfield for the self-same conduct, that is relying upon the misleading and deceptive conduct, suggests an incongruity that the legislature did not intend, that is that a person who trades on the basis of false information could be liable for insider trading. Can I go back to your Honour Justice Kiefel’s point and say that when one looks at the separate definition of “information” in 1042A on page 51, as opposed to the definition of “inside information”, one sees the splitting of these elements of the offence, and one sees that picked up 1042C.
KIEFEL J: Is not the prohibited conduct in relation to “inside information”?
MR BENNETT: Yes, but you have to have “information” before - - -
KIEFEL J: So, would not the elements of the offence therefore be whether the person possesses “inside information”, not just “information”?
MR BENNETT: I agree entirely.
KIEFEL J: That brings in the definition of “inside information” and the materiality of the effect.
MR BENNETT: But inside information itself incorporates the definition of information because it means information - - -
KIEFEL J: But you do not hive off information as if it has no context. Inside information is a defined term which takes up the purposes of the legislation.
MR BENNETT: The difficulty with your Honour’s proposition is then when one confronts 1042G and 1042H where you have the concept introduced into the division of the possession of information, not the possession of inside information, but the possession of information. It raises the question that my friend needs to confront as to how do you possess something that is a fiction? So, how would a body corporate be taken to possess information that is false which a officer of the body corporate possesses which came into his or her possession? How does one come into possession of a falsity, a fiction?
You see that in 1042G(1)(a), for example, or you see that in respect of a partnership or an employee of a partnership in 1042H(1)(a)(i). The legislature then draws back from the phrase “inside information”, concentrates again on the concept of information and then if you go to 1043A(1) to see the first of the offences, the trading offence rather than the procuring or communication offence, one sees in (a) the first of the elements:
a person (the insider) possesses inside information –
the insider then knows that the matters are satisfied, that is materiality, they must not acquire financial products or procure. Then subsection (2) is the tipping offence. So one sees the nature of how it has developed in that sense into the various elements. We would say then that one is driven back to the definition of “information” in 1042A when you confront, as your Honour Justice Crennan raised, the fact that it is an inclusive definition that includes matters of supposition and other matters insufficiently definite to warrant being made known to the public, matters relating to intention.
Can we say that you need to, in this case, focus particularly on the way in which the Crown ran its case both in a pleaded sense on the indictments and the particulars for the indictments and in the conduct of the trial before his Honour Judge Wisbey in the District Court of Western Australia. This in contradistinction to the Rivkin particulars. Mr McGowan said that Impulse was to be the subject of a merger with Qantas where the identification was of the statement made by a person, and your Honours will know that in the Court of Appeal the challenge that was run was that the statement made by a person could not be information. It had to be the underlying truth of the proposition. The proposition was rejected in the Court of Appeal in The Queen v Rivkin.
Here the particulars that were run were precise facts. Can I demonstrate that and show your Honours, firstly, by taking you to volume 1 of the appeal books? Your Honours pick up the indictments at page 2 of the bundle, and your Honours see that count 1 of these multiple counts against both Kizon and Mansfield was a conspiracy charge, that they:
conspired . . . to commit an offence contrary to . . . the Corporations Act 2001 . . . by procuring the purchase of shares in AdultShop.com Limited –
Then at page 30, your Honours will see that the Crown delivered particulars in relation to this, and your Honours see on page 31 the particulars that are given for count 1, and I use that as an exemplar for a reason. The information comprises the:
possessed was to the effect that:
Now, your Honours need to pick up volume 2 of the appeal books to see how this was then – sorry, stay with volume 1, I apologise, your Honours - and go to page 176 which was the opening by Mr Champion of Senior Counsel who appeared together with Mr Woinarski at the trial on 22 January 2010, and your Honours pick up between lines 30 and 40 in the paragraph beginning:
If we look at the particulars, and we go back now to the very beginning, count 1, you can see how we put the case, that this is the information that is conveyed by looking in particular at count 1, that, firstly, (a) the expected profit . . . secondly, the expected turnover . . .
We set out in the particulars in the same way that we set out with the My Casino allegations that the information at paragraphs (a) and (b) had been obtained on or about 4 January as a result of a private conversation -
The way in which Mr Champion opened for the jury was to skip over AdultShop and deal with the opening in two distinct parts – the second tranche of indictments related to trading in the securities for a company called My Casino, and that does not concern your Honours here. You then move across to page 179 of the bundle and in the same speech to the jury Mr Champion says at about line 25:
We allege that while the accused men were in possession of the information that we discussed with you just before lunch, the two particulars (a) and (b), that that information was to the knowledge of both men material and not generally available.
So, the central tenor of the opening was to concentrate on (a) and (b), and one picks that up again at page 183 of the same book which is the conversation. Then the matter came up again two months later prior to the no case to answer submission being made, and your Honours pick up volume 2.
HAYNE J: Can I just understand, where are we driving to? What is the point that you are trying to illustrate?
MR BENNETT: That this is an instance where the Crown’s case was pleaded with particularity. The pleading is critical. The pleading was not of statements being made, but of asserted facts. Those facts were demonstrably false. We draw a distinction - - -
HAYNE J: Yes. I think we have that point. We understand that point.
MR BENNETT: The distinction we draw, your Honours, is had the Crown case been “Mr Day said these words”, the making of the statement, we would accept, is a fact, even if the content of the statement were a falsity. It is akin to the leading hearsay evidence. It is the making of the statement that one proves rather than the truth of the statement. But the pleading and the way in which the Crown ran its case is of critical importance because here, separated out from the making of the statement, was the isolated piece of alleged factual knowledge which is false.
HAYNE J: This comes back to your basic point, that information is true information?
MR BENNETT: That has to be separately - - -
HAYNE J: Is there anything more to it than that?
MR BENNETT: No, but one needs to deal with it because it is conflated, in my friend’s submission, with the making of the statement. The source was specifically disclaimed by my friend to the judge as being part of the information. You will see that at page 517 of volume 2 where my friend says, dealing with this same count, at line 26:
Now, the particulars that are provided in relation to that is (a) the expected profit . . . had risen . . . and the expected turnover . . . Paragraph (c) is not particulars of the information at all. Paragraph (c) just particularises where the Crown alleges the information had come from. But it’s (a) and (b) that’s the information.
You read further on that at line 40 on page 518, and line 16 on page 518A.
HEYDON J: Did you say 518A?
MR BENNETT: Page 518A?
HEYDON J: I do not seem to have that. It could be some deficiency on my part.
MR BENNETT: I am sorry, your Honour.
HEYDON J: No need to bother, Mr Bennett, it is all right.
MR BENNETT: It was an insert. If I can just tell your Honour what Mr Woinarski said to his Honour, “Now that is the way we propose to put it to the jury, your Honour. In our submission, it makes it very clear to our learned friends exactly how we are putting it, and it is consistent with what we said the other day.” It was an adoption of that as to the way in which it was to be put to the jury. I raise that because my friend, in his submissions, says, “No, I was only dealing then with an argument on a voir dire as to the adequacy of the particulars for the conspiracy plea, whether they were duplicitous, whether one read the (a), (b), (c), (d), (e), (f), (g) and some of the particulars as disjunctive or conjunctive.”
Can I pick up what your Honour Justice Kiefel raised about the international legislation which we raise, and your Honours will know that the Griffiths Report highlighted 13 years ago the importance of Australian regulatory framework being viewed in the context of the international regulatory framework. What was apposite 13 years ago is even more apposite today in terms of the globalisation of securities markets worldwide.
But your Honours will see from an analysis of the legislation that, barring Canada and New Zealand which appear again to rely upon an ordinary meaning of the word “information”, the European Union states, and England in particular, define “information” as a precise set of circumstances and facts and, we would say, in a manner that is inconsistent with a concept of a falsity constituting information. We say it is important in the construction of our legislation and, bearing in mind the intention of the legislature reflected in the report that gave rise to the 1991 Corporations Amendment Act, would be to see a consistency in - - -
KIEFEL J: I had actually had in mind examples given in volume 2, pages 86, 88 and 90 of the definition of “inside information” which, for Germany, France and Spain at least, define “inside information”, amongst other things, to refer to the effect that it may have upon the market.
MR BENNETT: Yes.
KIEFEL J: A significant effect on the market price of the insider security I think is the term often used.
MR BENNETT: But the European Union, being signatories to the European directive and the - - -
KIEFEL J: Yes, but I think what you are talking about in terms of European directives are information for the purposes of other offences, as you have in relation to this legislation where information sometimes needs to convey other things for other offences.
MR BENNETT: Yes. The point that I was drawing from there is, if one dealt with the Financial Services and Markets Act 2000 in the United Kingdom, the relevant section of which is reproduced at page 83 of volume 1 of the papers, the inside information is information of a precise nature and the precise nature is defined in subsection 118C(5) on page 84:
Information is precise if it-
(a) indicates circumstances that exist or may reasonably be expected to come into existence or an event that has occurred or may reasonably be expected to occur –
a definition of “information” that is wholly inconsistent with a fiction, because it has to be a circumstance that exists or an event that occurs. Now, I qualify that to say it may, and we do not argue this, but it may extend to the making of a statement in that distinction that I raised earlier with your Honours between the fact of making a statement even though the content of the statement conveys a falsity, but the English model is only consistent with the appellant’s construction of 1042.
KIEFEL J: But neither it nor the European directive is concerned with whether or not the information is factually true. It is concerned with the precision of information which may indicate that something could occur. It is not concerned with ambiguous information, the precision of information. It does not say anything about its falsity or truthfulness.
MR BENNETT: We would say that it presupposes factual reality, to adopt the trial judge’s phrase or to adopt what her Honour Appeal Justice McLure said, that it actually exists.
KIEFEL J: The precision of information indicates a quality which, when conveyed, may impact upon someone and cause them to think things about market price. You have to read it with the other requirement of the definition of “inside information” which has regard to the market effects. These are the things that - - -
MR BENNETT: The materiality. I accept that entirely, your Honour, and I apologise if I appear at cross-purposes with your Honour. Accepting what your Honour says, your starting point, if we take the English statute as an example, is to look at whether or not it is information as defined within the regulation. You start by going to subsection (5), and it is information of the type captured in section 113C, “if it indicates circumstances that exist”. Now, test that proposition against the first respondent’s position here. A falsity is never a circumstance that exists. It can never be information for the purpose of subsection (5) of the English statute. It could never be information for the purpose of the market abuse directives.
KIEFEL J: For the purpose of your argument, how do you read subsection (5), paragraph (b):
Information is precise if it –
. . .
(b) is specific enough to enable a conclusion to be drawn as to the possible effect of those circumstances or that event on the price of qualifying investments or related investments.
We are talking about hypotheses.
MR BENNETT: The first thing we read on that (b) is conjunctive to (a) indicated by the word “and”. So it is a second quality that adds onto something that exists.
KIEFEL J: Yes, but you have to read the two of them together, that is very true.
MR BENNETT: I accept that entirely. So a mere statement of a circumstance that exists that is not specific enough to enable a conclusion will not constitute information for that purpose, but a falsity can never get past the hurdle of (a) to get to (b). So a specific falsity is not enough because by being a falsity it is not a circumstance that exists or may reasonably be expected to come into existence. So it is the conjunctive nature of that definition that is the answer to your Honour’s question.
HAYNE J: That may not give proper weight to the word “indicates”, but we are here not to construe the English provision. We are here to construe the Australian provision, are we not?
MR BENNETT: I accept that entirely, but it illustrates that within the Australian definition we would say that to conflate the concept of materiality with the quality of what is said to be information is to move to a second logically subsequent consideration. You need to have information, it needs to be inside and then you consider whether or not it has a material effect as defined by the statute. You do not start with the proposition that appears to have infected his Honour Appeal Justice Murray, with respect, where he said a lie will never be material, it will always be shown to be a lie and therefore that is how the statute winnows out lies. We know that not to be the case in society.
We know that lies can be pervasive until they are revealed and the question of materiality tested by the proposition Packer has bought 4.9 per cent of AdultShop, it is not going to be disproved in the market for some time or unless somebody seeks to do it. There is no disclosure obligation, as your Honours know, on a shareholding of 4.9 per cent, the trigger for substantial shareholding being 5 per cent. So how does it get disproved in the marketplace? So it is pervasive, we would say. It is not on its face something that, when held up to the light, a reasonable investor who commonly trades in securities says, “I do not believe that. It is no material effect.”
The propositions we drew from - referring your Honours to the international legislative framework, is to say that they are only consistent with the construction of the statute advanced by the appellant and not by the first respondent. We would stand as an island separate from the rest of the regulatory system, we would say, if your Honours were to accept the proposition that a bare faced lie could constitute information for the purpose of insider trading. Your Honours should know that no other case law that the parties look to necessarily assists in this regard. Many of the cases deal with the proposition that what we are looking at in terms of inside information is factual knowledge. Your Honours are aware of the decision of his Honour Justice Young in the Barring Brothers Case, and your Honours pick that up in volume 1 of the book of material.
HAYNE J: What is the proposition you want us to take out of this?
MR BENNETT: I want to identify that case law in the lower courts has dealt with the concept of inside information being factual knowledge extended by the inclusive definition of supposition, an inference based upon facts, so that the concept that we advance that information is factual knowledge, as opposed to fictional invention, is consistent with the authorities and how they have dealt with that. The passage in Hooker v Baring Brothers to which I intended to refer your Honours one finds in the book of material at the bottom of page 389, and the report reproduced here is the 10 ACLR 462, and at the foot of what is 467 his Honour turned to the question of what is information.
KIEFEL J: I am sorry, whereabouts is this in the volume?
MR BENNETT: Does your Honour have volume 1 of the book of materials?
KIEFEL J: Yes.
MR BENNETT: At page 389.
KIEFEL J: Thank you.
MR BENNETT: The passage starts at the foot of the page and one goes across to the decision of Justice McInerney in Green’s Case, and what his Honour was there concerned with was that he drew from that that inside information is:
factual knowledge either of a concrete kind or that obtained by means of a hint or veiled suggestion -
then his Honour raised the query of -
whether it is safe to equate information and knowledge. Information is often defined as knowledge acquired –
and then posits in the second paragraph at line 18 -
To my mind information in sub-s (1) goes further than knowledge and includes the situation where someone has been informed of something which he does not know to be true nor does he care whether it is true or not. In other words, information may include a rumour that something has happened with respect to a company which a person neither believes nor disbelieves.
HEYDON J: Is not that against you?
MR BENNETT: I need to confront it because it is put against me to say that your starting point is to go with factual knowledge, and then what his Honour is there talking about is the distinction that I drew before of criticality as the way in which the Crown ran its case; it did not run its case on the basis that Malcolm Day said something, it ran its case on the basis Packers bought 4.9 per cent.
Were the case, Malcolm Day said, Packers bought 4.9 per cent, that would be a rumour that something has happened with respect to a company which a person neither believes nor disbelieves. It cannot be a supposition by Mansfield, nor was it put that it was a supposition that was relied upon by the Crown in circumstances where it was put as a bare, alleged fact, a false fact. That distinction is of paramount importance and your Honours know that the criticality of the way in which the Crown pleads and its particulars in a criminal matter - - -
HEYDON J: Speaking for myself, I really do understand that point. What if the truth were - and let us try and make it a little bit more abstract - the alleged buyer had actually bought 3 per cent. Is that true or false on your argument?
MR BENNETT: If the reality were the alleged buyer had bought 3 per cent? The half truth.
HEYDON J: If true, is an expression which is applied very strictly, the provision will have a very narrow application.
MR BENNETT: Only if the Crown adopts that, the practice that it did here. There has to be precision between what is proved and what is alleged to have been known. There has to be a precise correlation. So, if you prove that we knew that we acted on 4.9 per cent, that is the case that is put and all that you can establish is 3 per cent, there is not a correlation between the information as alleged and the proof of the information.
HAYNE J: But how could the fact that Mr Day said x, y, z, be information?
MR BENNETT: Because the making of a statement by a person is itself a factual matter.
HAYNE J: Of course it is, but how could it be information?
MR BENNETT: Because it conveys that the managing director of a listed organisation has said something often concerning the organisation - - -
HAYNE J: And the real sting in it is the information conveyed, that is, what is conveyed. Is that not the way in which information is to be understood in this division? It requires identification of what is conveyed, regardless of truth or falsity. To that you apply the materiality consequence.
MR BENNETT: That is an argument that was advanced on appeal in Rivkin and rejected as an overly technical construction of the section by the Court of Criminal Appeal in New South Wales. If I can show your Honours how that was dealt with by their Honours? If you take up volume 2 of the papers and the decision that is reproduced there commences, your Honours, at page 600, the decision of President Mason and Chief Justice Wood and Justice Scully in the Court of Criminal Appeal in 2004. The relevant passage starts at 618 in paragraph [127] where the passage that I took you to in Justice Young’s decision in Hooker v Baring Brothers is referred to, and then their Honours write:
The distinction which it is suggested was drawn by Young J in this passage between information and knowledge, and the means by which knowledge is acquired, were relied upon in support of the proposition that information or knowledge does not extend to the means of its communication. Upon that basis it was submitted that “information” for the purposes of the section “could not be that someone said something”, and that as a result, the Crown case failed in limine.
Then it is asserted:
the Crown departed from its particulars . . . (that is that Mr McGowan “had said something”).
Then across the page at [131], their Honours just reject them without particular detailed reasoning. They say in [131]:
In our view these are arguments of the most technical kind that are entirely lacking in merit.
HEYDON J: That seems to leave Mr Justice Young standing.
MR BENNETT: Yes, and then [134] on the same page, they accept that who says something points to:
Its potential reliability depends upon its source . . . experts seem to have been in general agreement.
It appears to be accepted, at least by their Honours in that case, that the fact that a person says something can be information itself and not merely the means of - - -
HAYNE J: I am not sure that is consistent with paragraph [135] at all, Mr Bennett, of what their Honours say, but no doubt we will have to read the case with care but I would have thought [135] was to the opposite effect.
MR BENNETT: The particulars that were relied upon in that case your Honours find at the first instance ruling on the no case to answer submission, which is reproduced at 563 and 564, and your Honours see that particulars (1), (2) and (3) are each drafted in the fashion “Gerard McGowan said”. This was while Mr and Mrs McGowan were looking to buy a Rivkin entity owned residence in Bellevue Hill. They were the particulars that were relied upon for the purpose of the trial, and it was that which their Honours on appeal were dealing with - - -
HAYNE J: I think we are at point 9 of your written outline, are we not, Mr Bennett?
MR BENNETT: Yes, your Honour. The only other reference that I wanted to take you to in terms of a more recent adoption of the concept of information being factual knowledge was his Honour Justice Jacobson’s reasons for decision in ASIC v Citigroup (No 4), and your Honours find those in volume 1 of the material at page 179, the relevant passage being paragraph [534] of his Honour’s reasons for decision at page 179. This is part of a very long passage where his Honour deals with how non-specific material can constitute information.
With the point that I have made to your Honours before about the fact of a statement made being constituting information, can I just briefly refer your Honours to the case that his Honour Justice Buss referred to as being an analogy to extend the definition or the concept of information into falsity? His Honour looked at the decision of the Full Court of the Federal Court in Win v Minister for Immigration and Multicultural Affairs, the neutral citation being [2001] FCA 56. It was not reproduced in the book of material, your Honours, but it dealt with the Migration Act, and a review of the decision of the Refugee Review Tribunal.
What had occurred is that an anonymous person had written to the Refugee Review Tribunal concerning the application by Win for refugee status, contesting whether Win was genuinely a person who politically opposed the regime in Myanmar, and the question as to whether or not that was raised was whether under that relevant statute – it was the Migration Act – the Tribunal was entitled to have regard to the letter or whether, it being asserted that the information contained in the letter was false, it was not entitled, and there the distinction lies, we would say, in that the Tribunal is entitled to have regard to the fact that an assertion had been made by somebody, even if the information were false, if only to put it to the applicant for refugee status to enable them to be heard on the allegations.
That is just not a proposition that advances the underlying point. Can I show you how this distinction, we would say, infected what his Honour Appeal Judge Buss’ treatment of the case at hand was. The case at hand was the pure fact was a falsity and that could not constitute information and the summary conclusion paragraph is paragraph 114, which your Honours find in book 9 of the appeal books at page 2891. Your Honours see that the way in which the learned appeal judge expresses his conclusion is to say:
In my opinion:
(a) a statement may be ‘information’, as defined, irrespective of whether or not the matters stated are reliable or have a sound factual foundation –
Now, that is consistent with Rivkin. We do not argue that as a proposition –
(b) an opinion, a prediction and a forecast may each be ‘information’ –
and we do not argue with that because this case is not about that –
(c) a statement, opinion, prediction and forecast may each be ‘information’, as defined, even if the person who makes or repeats the statement, opinion, prediction or forecast knows or believes that:
. . .
(iii) it is unreasonable, false or a lie.
Now, the making of the statement could be information, but that is not the case that was before his Honour. The case before his Honour is whether the statement, the fact, is a lie, whether that can constitute information. So his Honour having posited a conclusion that was different from the issue before him, then identifies what his Honour sees as 13 factors that go to the issue to support his conclusion, the first being that the definition of “information” contains no express stipulation that the information must be truthful. That, with respect, is to ignore the common meaning of the word “information” which is knowledge of a fact, communication of a fact.
His second reason is to say that it is not a defence, and that is to ignore the fact that it is an element of information. The third is to say that opinions, predictions, forecasts are uncertain and speculative and that may be right, but it is not the case that before his Honour. We would not argue with that as a proposition. The fourth is that “matters of supposition” will invariably, if not always – and I am not sure what that adds – be “insufficiently definite to warrant being made known to the public”. Does not follow that matters of supposition will not be information and, again, this case was never run by the Crown as a matter of supposition and that is not germane to the conclusion that a falsity cannot constitute information. It is a part of the extended definition of “information”.
The fifth item is information is not confined to matters “generated by or on behalf of the corporation whose securities are traded”. His Honour is right to say that the legislation moved away from the question of connection, but this is where her Honour Justice McLure says, without retreating into the person being connected, the information must be relevant to the corporation. It cannot be information irrelevant to the corporation, so some connection is necessary.
BELL J: Where is the statutory basis for that?
MR BENNETT: Nowhere. It is the commonsense concept of materiality, that the information must be related to the corporation otherwise it would be irrelevant. If somebody says the government of Australia is about to change, that may have an effect on the markets, but it is not related to the corporation as such. The starting point was that the legislation, when first introduced, required that the person who conveyed the information had a connection to the corporation. The Griffiths Report said that was unduly restrictive and they removed the connection point.
What her Honour Justice McLure argues, convincingly we would say, is the information still has to have a quality of belonging to somebody that is connected with the corporation. So it could be that if an assay laboratory was carrying out the assay on a core sample for a mining company and a scientist engaged in the assay then traded in the securities with knowledge of the assay results, that being information not generally available but likely to have an effect on the price of the securities, be price sensitive, then he would have a connection to the corporation because he was assaying their results.
HAYNE J: Do you seek to support what her Honour said at paragraph 18 of her Honour’s reasons? In particular, do you seek to support the proposition that, “[I]t is an element . . . that the inside information . . . correspond in whole or material part with actual inside information in the possession of the entity”?
MR BENNETT: Not entirely, your Honour, can I say. The qualified answer is we agree that it must correspond to actual inside information, that is factual matters. The possession of the entity is unduly restrictive. If I take the example that I was developing with her Honour Justice Bell a moment ago, if it was in the possession of the assay laboratory, it may not be technically in the possession of the entity but somebody connected with the entity.
If one looks at the Citigroup Case, the fact that Citigroup was advising on the Toll takeover, it is not in the possession of the entity, it is in the possession of their advisors but it is connected to the entity. So what her Honour says in terms of possession of the entity needs to be considered in a broader context than the words suggest, the mere word “possession” suggest, which in a legal sense would be unduly restrictive. But the correspondence with actual inside information is right, we would say, because it could not correspond – if it is a falsity and hangs outside the company, has no relationship to the company, then it cannot, we say, constitute information itself. It is a fiction, not a fact.
The sixth point that his Honour Appeal Justice Buss picks up back at 2893 in paragraph 121 was that the fact that information has been obtained from a particular source is itself information. That is a Rivkin proposition and we do not debate that, but again it is irrelevant to the facts before us and it is irrelevant to the question that his Honour was asked to conclude.
The seventh point in 122 is Division 3 does not require the Crown to prove that you use or rely upon the inside information. That is a trite proposition. That again does not bear on what is information, that is that possession is all that the statute requires, does not require proof of usage, but that again slides past the issue that was before his Honour. Paragraph 123 is Delphic in part, information that is not a factual reality may influence persons, we agree, and the legislation obviously agrees because it criminalises the making of false statements in Division 2 of Part 7.10.
His Honour posits the proposition that it may influence people even if untruthfulness is known to them. So if somebody lies to you and you know it is a lie it may influence you. I do not know what his Honour had in mind as an example of that. You may immediately sell your securities on the basis that the person who told you that, if they are connected the corporation, is a liar and you do not want to invest in a company where a liar is the managing director, would be a good reason to sell out of AdultShop in a trice. Perhaps his Honour had in mind, if you knew the lie was going to be touted through the market, you might get in first, or something of that nature. I do not know what his Honour had in mind, but it is difficult to understand how that could be the case. But, again, it is inconsistent with the civil right of damages in 1041H that is conveyed by the Corporations Act.
BELL J: Can I just take up one aspect of that branch of your argument. Accepting there may be some overlap between Divisions 2 and 3, the false and misleading statements with which Division 2 is concerned are not confined to false or misleading statements of an inside character.
MR BENNETT: I accept that.
BELL J: So one can see Division 2 is dealing with a very different problem in the securities market than the specific issue of insider trading, is it not?
MR BENNETT: Yes. But if one remembers that 1041H picks up as a civil remedy rights for contravention of 1041E through to 1041I, so 1041F is a material statement that induces a person to buy, a false statement that induces to buy, that would satisfy the test of materiality that is defined in 1043C.
BELL J: But that would include false statements that were generally available, would it not?
MR BENNETT: Yes.
BELL J: So that when one looks at what is being sought to be criminalised in Division 3 and one considers a person who is in possession of information which they know to be not generally available and which, on the face of it, is price sensitive, why would there not be an intention to attach criminal consequences to that, notwithstanding that the information is not factually accurate? Just looking at the policy of the divisions and they are rather aimed at different considerations, one might think.
MR BENNETT: If there is an overlap, it is in the nature of a Venn diagram or it is a subset of the liability for civil damages - - -
HAYNE J: It is not concerned with the position of the person who receives the information. The insider trading provisions are concerned with the health of the market.
MR BENNETT: I am sorry, your Honour, I was unclear in my answer a moment ago. Let me rephrase that, if I may. I start with the basic proposition that it is inconsistent with policy for a person to have a statutory right of damages for conduct that is itself criminal, so one would strain away from a construction that gave one party to an offence a right of damages for being engaged in an offence. The second point is to say there is no policy rationale that underlies the introduction of the insider trading provisions to safeguard – that is, market unfairness, market efficiency, misappropriation theory, injury to the corporation – that is advanced by the prosecution insider trading over falsities.
BELL J: But going in the market on the basis of a falsity and acquiring a substantial shareholding might work the very unfairness with which Division 3 is meant to concern itself, surely?
MR BENNETT: The unfairness is inequality of access to information.
BELL J: Yes.
MR BENNETT: The insider has access to information that the outsider does not and thereby gains an advantage either to sell or to buy in circumstances which will be unfair to the outsider. Where the person who becomes an insider becomes it on false information, they are excluded from the outsider in a manner that penalises them because they are dealing with a false market, a false market that the legislature tries to prohibit by Division 2. That is not the unfairness inherent in the policy rationale that underlies Division 3 which is you should not get the head start.
Mr Champion opened it to the jury by saying it is like knowing the answers to the question when you sit an exam and if you are given the wrong answers, you fail the test every time. The person who does not have the wrong answer has a chance of at least getting it right, but my client who receives a falsity has no chance of getting it right. He has got something that is false. He is trading on a completely false assumption, “Packer has bought 4.9 per cent, I better buy too”. Nobody else is thinking that because it is an untruth.
So when he goes into the market to buy, yes, his conduct of buying perhaps has a distorting effect on the market, but the fault for that the legislature puts at Day’s feet because he disseminates the false information. He needed to do that. He had two substantial shareholders selling down his stock, so he was pumping up his shares to create a market for them and he was doing it to the gullible and the naïve and the unwitting – and my client answers that description in spades – but not with moral turpitude, as my friend put it in his submission, because he is a victim under Part 2, not a criminal under Part 3. That is the point that we address. The unfairness needs to be considered as the advantage gained by getting true factual knowledge, even if it be a hint, a rumour, a supposition based on a truth, but you cannot suppose something to be true when you know it to be false.
I was at the ninth reason on page 2893, paragraph 124, that his Honour posits and this is where his Honour conflates materiality with falsity. His Honour writes:
For example, a statement which appears, on its face, to be completely without foundation, would be unlikely to influence persons who commonly acquire –
Now, of course that might be right. A falsity that is so completely absurd might be wrong, but if a rumour swept the market, for example, that Mr Andrew Forest had died tragically in an accident, that may be false and may be demonstrably false when Mr Forest appears on television, but for a moment people will say, “Well, if the market moves instantly”, quicker than instantly now that algorithmic trading takes place, but “I better sell immediately.” Something of that nature. But that simply posits an extreme example and does not deal with the facts that were before his Honour and it conflates, as we say, the second, or the logically subsequent question of materiality with the real issue that was before his Honour of what constitutes information for the purpose of the Act.
His Honour then posits as his tenth reason at paragraph 125 on page 2894, that it is consistent with the market fairness and market efficiency policy rationale and we, with respect, differ from his Honour in that regard. The 11th reason”
if a ‘primary insider’ reveals ‘inside information’ to a ‘secondary insider’ or ‘tippee’ with the intention that the ‘secondary insider’ . . . [the fact that] the ‘primary insider’ knows or believes that the ‘information’ is not ‘truthful’ . . . the ‘primary insider’ would be likely to incur a criminal liability –
So if we are told Packer has bought 4.9 per cent and we tell somebody else with the intention that they trade, we are liable for the tipping offence and that, again, we say, with respect to his Honour, does not grapple with the central proposition that his Honour was to consider, that is whether the false statement is information. His Honour’s 12th reason is to look at United States case law and say that they are generally unhelpful and they are not analogous and they are based on fiduciary duty and misappropriation of information. What we say of that is his Honour did not go far enough. If his Honour had looked at the full panoply of international regulation that the Griffiths Report urged the legislature to consider, then his Honour would have seen that, in the manner that we argue for in our submissions, it is directed to a different point.
The 13th point is that the trial judge had said there would be difficulty in directing a jury on how to deal with false information, and his Honour says that:
there is no difficultly in conceptualising how ‘information’ that is not ‘truthful’ or not a ‘factual reality’ could satisfy the test of
‘materiality’ . . . or how a jury should be instructed to approach the task where the [inside] ‘information’ is false.
That, we say, in the manner that his Honour then develops in 129 and 130, goes to show the difficulty that one would confront when talking to a jury and dealing with a jury and saying, “Although this is a complete lie, you would look at materiality of the lie itself and posit that as a false circumstance. What if the market were told this lie? What if a person who reasonably or commonly traded in the securities, which would probably be a professional share trader, or a hypothetical professional share trader, what would they know of this?”
So we say that, with respect to his Honour, the 13 reasons that he advances for the conclusion need to be considered, firstly, that the conclusion is not appropriate to the issue that is before your Honours and was before his Honour, was not the question of the statement being information but was the fact particularised by the Crown was said to be the information and, secondly, for the reasons we advance, the 13 reasons are not supportive of the ultimate conclusion if the ultimate conclusion be read differently from how we read it to be that a false statement can constitute information.
Appeal Justice Murray’s reasons for decision, we say with respect to his Honour, conflate materiality, and your Honours pick that up at page 2947 in paragraph 307 of the Court of Criminal Appeal’s decisions. His Honour’s reasoning, we say, is not persuasive and your Honours should not accept it. Unless there are any other matters that I can assist your Honours with, they are our submissions.
HAYNE J: Thank you, Mr Bennett. Yes, Mr Shirrefs.
MR SHIRREFS: If your Honours please. The starting point, in our submission, is to look at section 1043A, which is the prohibition with which we are concerned as being a criminal prosecution, and to pick up on matters raised in argument earlier by your Honour Justice Kiefel as to whether or not the meaning of “information” is broadened as a result of the prohibition being on the trading – on inside information, being information which is not generally available. The starting point in determining what is inside information, in our submission, has to incorporate within that the concept of information on the meaning of “information” as understood in Division 3 which, in our submission, is the ordinary meaning to the extent that it is broadened by section 1042A. I will come to that in a minute. Our primary submission is on any view of the analysis of the meaning it does not include lies and falsehoods.
I then want to turn to the case that we had to meet here. The Oxford English Dictionary, 2nd edition, provides a variety of meanings of “information”. Pertinent to this case is point 3 of that definition which defines “information” as being:
Knowledge communicated concerning some particular fact, subject or event –
That was the case that was placed before this jury and it was the case that was required to be met by the two accused. To the extent that it is of assistance to your Honours to have the Oxford English Dictionary, 2nd edition, I can provide five copies of that to your Honours.
HAYNE J: Yes. Thank you.
MR SHIRREFS: It is in volume 2, page 769, but I have it here readily available. The reason I submit, your Honours, that that particular aspect of the definition is of importance in this case is because of the manner in which the case was opened. I want to take your Honours to passages that you have not yet been taken to.
HAYNE J: In aid of what proposition? You say that information is knowledge communicated about a subject.
MR SHIRREFS: Yes.
HAYNE J: You want to say that the knowledge communicated about the subject must be accurate, that is, you want to add the word “accurate” or “true” into the - - -
MR SHIRREFS: No, no. We want - - -
HAYNE J: No, let me finish, Mr Shirrefs.
MR SHIRREFS: Sorry, your Honour.
HAYNE J: You want to add the notion of accuracy or truth into the dictionary meaning, knowledge communicated about a subject?
MR SHIRREFS: Concerning some particular fact.
HAYNE J: Or subject?
MR SHIRREFS: Or subject.
HAYNE J: So knowledge communicated about the profit, performance or revenue stream of this company?
MR SHIRREFS: A fiction is not, in our submission, within that definition.
HAYNE J: We understand that point to be made.
MR SHIRREFS: It has been made.
HAYNE J: More than once.
MR SHIRREFS: Indeed.
HAYNE J: So, what extra are we going to have from you on this subject, Mr Shirrefs?
MR SHIRREFS: Before I come to answer that question, I want to take your Honour to two passages in the opening which clarify what we say is important in understanding the manner in which the case was put, and that is at volume 1, page 83. Again here dealing by way of example with count 1 on the indictment, the AdultShop count, your Honours will see commencing at line 32:
Let’s compare count 1 of the indictment to count 1 of the particulars –
We go to the particulars, and I will not read what follows, and then we get down to the last paragraph:
What was the knowledge that they possessed? Let’s look at the particulars of count 1. In relation to Adultshop, the information of which the two accused were possessed was to the effect that –
Then you have (a) and (b). In terms of the manner in which the prosecutor approached the meaning of “information”, that is to be found at page 88, how it was opened. This is line two:
Now, I want to say a little about information and inside information because we began by telling you that this case is about information. So it’s timely to tell you what, for our purposes, we say amounts to information.
And immediately you might think, “Well, I won’t have much trouble with this”. It’s a plain commonsense word meaning knowledge or facts communicated about a particular subject.
To adopt precisely what your Honour - - -
HAYNE J: Knowledge or facts.
MR SHIRREFS: Sorry, your Honour.
HAYNE J: Knowledge or facts.
MR SHIRREFS: Or facts. Well, it should be “knowledge of”. It is a typographical error, one would have thought, in the syntax.
There’s no magic about that concept.
That was the concept that was ultimately adopted. Line 29:
That doesn’t take away from the basic concept of what information is. Facts, knowledge communicated about a particular subject, inside information.
Now, the definition of “inside information” goes back then to what is information and to deal with the point raised by your Honour Justice Hayne, there are two streams which we say are important in our analysis of the meaning of this division.
The first is the historical connection in terms of what has gone before, and secondly the analysis that is applied to the division by President McLure and I will come to that in a minute. The starting point is 1961 Companies Act which your Honours will find in volume 1. We have both the Victorian and I think also Western Australian. It was in very different terms back in 1961 in section 124 and this is on page 2 of volume 1 of the authorities:
An officer of a company shall not make use of any information acquired by virtue of his position as an officer to gain directly or indirectly an improper advantage for himself or to cause detriment to the company.
That has within it the notion that the information that has been acquired is as a result of that which has come from within the company, so it is connected to actual information in the possession of the company. The next provision was section 128 of the Securities Industry Act. I do not think it has been reproduced in volume 1 so I need not trouble your Honours with that. I will take your Honours to page 13 which is the provision which immediately precedes the amendment which was based upon the recommendation of the Griffiths Committee, and that is section 1002 to be found at page 13:
(1) A person who is, or at any time in the preceding 6 months has been, connected with a corporation shall not deal in any securities of that corporation if, because of so being, or having been, connected with that corporation, the person is in possession of information that is not generally available but, if it were, would be likely materially to affect the price of those securities.
Now, there are two observations to be made about that provision. The first is that it is concerned only with a person who in the preceding months has been connected to the corporation, and it was to that aspect that the Griffiths Committee was concerned and I will come to that in a minute.
The second aspect is that the information that the person is possessed of, they become possessed of as a result of their connection with the company. We say that is a very important understanding of what was meant by information. It is information that is information of the company that the person has become possessed of as a result of their connection. The Griffiths Report, which one then finds in volume 2 of the authorities, received numerous submissions about whether or not the insider trading provisions in the Corporations Act or Corporations Law as it was in 1989 - the Corporations Act in 1989, was too restrictive because it was limited to persons as a result of their connection with the company. You then have the Griffiths Report which is to be found commencing in volume 2 at page 689 and following.
HAYNE J: Page 689, I think.
MR SHIRREFS: In particular, if I could commence with page 720, and this is concerned with the policy considerations that they ultimately identified as being the important considerations for the insider trading provisions. At point 3.3.6 on page 720 they found this:
Rather, it must be emphasised that the basis for regulating insider trading is the need to guarantee investor confidence in the integrity of the securities market. Accordingly, the Committee confirms the principles adopted in 1981 by the Committee of Inquiry into the Australian Financial System (the Campbell Committee) as a basis for the prohibition of insider trading:
The object of restrictions on insider trading is to ensure that the securities market operates freely and fairly, with all participants having equal access to relevant information. Investor confidence, and thus the ability of the market to mobilise savings, depends importantly on the prevention of the improper use of confidential information.
Now, there are two aspects I seek to highlight there. The first is the reference to “relevant information”. In our submission, a lie cannot be relevant information from the point of view of the marketplace, and secondly, the last expression “confidential information”, connoting that the information is confidential in the sense that it has a connection in some way with the entity entitled to possess it, but it is not otherwise generally available. The next point I seek to refer to in the report is at 4.3.5, and this in relation to recommend - - -
HAYNE J: Before you come to that, it is rather necessary, is it not, to look at 4.3.3.
MR SHIRREFS: Yes.
HAYNE J: The distinction between connection with the corporation and use of the information and the new provisions focus upon use of the information rather than connection.
MR SHIRREFS: Absolutely, we accept that. Therefore, we come to Division 3 in its previous form, on the form following 11 March 2002. It clearly is not restricted to a person’s connection with the company. It is anybody. It is Rivkin, for instance - - -
HAYNE J: But you have gone away from insider trading to trading with inside information.
MR SHIRREFS: Indeed, to trading on what is referred to as inside information, yes. That is the point I was just about to come to. In the Rivkin situation, if Rivkin had information - Rivkin was proposing to buy a large share in a particular stock. He is not connected with that particular stock, but that is his intended action. That is dependent on the volume he was going to purchase. That may or may not be very sensitive in terms of the effect it had on the stock, but he is an entity who has that information. He is entitled to it. The defences in section 1043I and following, and H and J, provide him with a defence to the insider trading provisions. He is possessed of that information. He is not prohibited from trading under 1043A. I will come to that in a minute in dealing with President McLure, but I am dealing with what your Honour said.
If he then passed that inside information, this otherwise satisfies the test because he is intending to do it, I am intending to buy 100 million shares in a particular stock, and passes it on to somebody who is told to keep it hush-hush, and then that person then trades, they are captured by 1043A. They do not have the defence that applies to Rivkin, who is the possessor of the information and entitled to possess it, and entitled to act upon it. So the move was away from the connection of the person who is the insider to the corporation to the use that that person makes of it. But what did not change, and we say is important to bear in mind in looking at all of this, is that there is still that connection in terms of the information to the entity. That is to be found, we say, in 4.3.5, where the report said:
The offence of insider trading must have its genesis in the use of information derived from within a company.
We accept “derived from within a company” is restrictive in the sense that it is limited only to an entity who was the company, but the important focus of it is it focuses on the quality and nature of the information. It is information, which we submit, when derived from within a company, is information that actually exists.
BELL J: And that is how we are to understand Justice McLure at paragraph 18 on 2865?
MR SHIRREFS: Yes, she analyses it on the basis in paragraphs 13, 14, 15, to try and deal with what she said is “devilishly difficult” legislation, and it is. It is when one has – your Honour raises your eyebrows - - -
HAYNE J: Waiting to be informed, Mr Shirrefs, waiting to be informed.
MR SHIRREFS: I am trying to deal with what is devilishly difficult, both in terms of the legislation and the present situation. The difficulty is when one has what otherwise would appear to be an anomaly where in Division 2 the victim who trades on a falsity being disseminated in circumstances where it is likely to induce the person to trade has the civil remedy, but then the anomaly that that person notwithstanding being able to recover damages for their loss gets prosecuted for insider trading. We say that is a situation that Parliament did not contemplate.
HAYNE J: Its resolution lies in the fact that the remedy would not be available for the commission of an unlawful act, would it?
MR SHIRREFS: That would have to read that into section 1043I. It would mean that you would have to read into section 1043I additional words, those words being “save in circumstances” – or I will do it differently – but the remedy only lies in relation to misrepresentations that were generally available. Those words would have to be read in. It could be resolved that way or it could be resolved by reading what we say is the true meaning of information into Division 3. Coming back to the matter that was raised by your Honour Justice Bell; I have dealt with - - -
BELL J: Can I just, before you move on, ask how you deal with the matter that Justice Heydon raised with Mr Bennett? Let us assume that Mr Packer had bought 3.5 per cent and the information conveyed by Mr Day was that he had acquired an interest of 4.9 per cent.
MR SHIRREFS: The answer to it is simply this, your Honour, you approach it in the way in which it was approached by President McLure, and that is that the information that was traded on for the person to be guilty in a criminal offence must correspond in whole or material part with actual information in the possession of the entity entitled to it. The entity entitled to it here would be AdultShop because they had a share register. Their share register would record what the Packer holding is. The Packer holding was really 4.9 per cent but the information conveyed was 3 per cent. Is that a material correspondence? That is a matter of weight and fact to be determined by a jury in a criminal prosecution. It is a question of degree. That is the manner in which we approach it.
HEYDON J: Can information include opinions?
MR SHIRREFS: Yes, honestly held.
HEYDON J: Opinions in their nature are controversial.
MR SHIRREFS: Opinions, provided they are honestly held. An opinion that is not honestly held is not an opinion; it is a lie. A supposition not honestly supposed is not a supposition; it is a lie. That conduct is captured by Division 2, but it does not constitute information in the extended definition.
HEYDON J: But an honestly held opinion can be very wrong.
MR SHIRREFS: It may be.
HEYDON J: If it is honestly held, it is information even though it can be very wrong.
MR SHIRREFS: The point I am making is this, your Honour. A person may express an opinion which they believe to be false but, in fact, turns out as a fact to be true. Our position is that the person who expresses the opinion must honestly hold that opinion otherwise it is not an opinion. They do not have an opinion; they are simply stating a mistruth. A person who spreads a supposition or that supposes something must have an honest belief as to the supposing, so it is a supposition, but a person who knows it not to be true, or believes it not to be true, is not supposing anything; they are spreading a lie.
The point we have drawn in the sand, in terms of the line in the sand, is you cannot cross that line to incorporate within Division 3 circumstances where a person is spreading what they believe to be demonstrable falsehoods and lies for personal gain, as we say occurred here, and that gets picked up by the meaning of “information”, both in its ordinary sense and the extended sense. The Parliament, when it extended the meaning of “information” in Division 3, did not include within that “false information”. We say that is an important point to be bear in mind. They could have because in the ordinary meaning, “information” does not include lies.
They extended it include “supposition”, “opinion”, matters which are insufficiently definite to warrant being made known to the public. A lie could never crystallise into something that would warrant being made known the public, except that as to demonstrate the falsity of it. I was going to come to the language of the text itself in due course, but the language of the text supports what we say is a truth, that is, that information does not include lies. Be it a fact, be it an opinion expressed, be it a supposition or a matter relating to a likely intention of a person, a person either has an intention to do something or a likely intention to do something or they do not. They cannot pretend to.
HEYDON J: What about carelessly stated facts or carelessly stated opinions?
MR SHIRREFS: Carelessly?
HEYDON J: Carelessly and quite incorrect. The I of Mr Day observed in the share register that a certain shareholder had 0.49 per cent, which is materially different from 4.9 per cent.
MR SHIRREFS: In fact, 3 per cent. Well, the answer lies in the approach on the analysis of the provisions as provided by President McLure and that is when one looks at what is the information that one is concerned with. It is either generally available or it is not generally available. For it to be not generally available, we know it exists because the information is in the possession of the person entitled to it or they have access to it, it belongs to them, to use the language adopted by President McLure, otherwise it does it not exist. It has to exist, and that is information which is not generally available.
Now, the approach of President McLure, which is what we adopt, is that the way in which one is able to differentiate between a broadening of the meaning of information, which is what is being contended for here by the first respondent, to extend to lies of the type that I spoke of before, to a meaning that gives sense to both the legislative history and the text of Division 3 is to approach it on the basis that the information exists in the sense that it is belonging to, possessed or known to the entity entitled to have it.
Now, to deal with the point raised by your Honour Justice Heydon and again by Justice Bell, if in terms of carelessness a managing director looked at the share registry and misread the percentage holding and has said 4.9 per cent and he communicated 3, it comes to the extent of the material correspondence and correlation between that which in fact does exist as opposed to something which is wrong.
If the case was run on the basis, as it was here, that Packer had purchased 4.9 per cent but in fact he purchased 3.3 per cent, and that was the holding at the time that that statement was made, it may well be sufficient to go to a jury to determine whether or not that is a material correlation, but the case here was that at the time the utterance was made by Day, Packer had no holding through his various subsidiaries and entities in AdultShop. He had purchased a maximum of 1.1 per cent by 31 May and sold out – I think it was 15 May and sold out by 31 May.
So at the time it was uttered and the way in which it was pleaded by the prosecution here was as a fact. This is the information possessed by these accused that they traded on and it was a complete fiction. That is not relevant information that underpins the policy consideration of market fairness and equality. A complete fiction cannot be relevant market information. That is the expression used by President Mason in Firns. He talks of relevant information. It is relevant market information that is the essence of insider trading in terms of the equality of access and the level playing field.
HEYDON J: Let us get one thing straight. None of these statements in cases, whether they are by Justice Mason or Justice Young or Justice Jacobson, were ever directed to a case in which the arguments you are putting, or the first respondent is putting, were in play, which has looked at this point?
MR SHIRREFS: We are not aware of any case in Australia where the Commonwealth has prosecuted an insider trading case based on falsehoods. You look at Rivkin. Gerry McGowan was called as a witness, as were representatives of Impulse and Qantas. In Hannes, representatives of the various companies were called to demonstrate that Hannes worked on the floor where this takeover was taking place and it was all – it existed, it was real. We are talking about information. We are not talking about fiction.
HEYDON J: The point is that these phrases that other judges have used are not much use if they did not have in mind the present controversy.
MR SHIRREFS: I understand that. That is why this case is important, because this case will set the parameters, the boundaries, of where one draws the line in relation to the extent of Division 3.
HAYNE J: You have got special leave, Mr Shirrefs.
MR SHIRREFS: I remember, your Honour.
HAYNE J: Do go on.
MR SHIRREFS: Yes, I remember it well. As I said on that application to your Honour Justice Hayne, the analysis of the provision by Justice Buss and the conclusions that he reaches, if they are allowed to stand, give the broadest imaginable reach of the insider trading provisions. So that any person who says anything relevant to a security, or they may have a material effect on a security, comes within 1043A, subject to the issue of generally available and materiality, but that becomes information. That is a substantial departure, we submit, from all that has gone before and it is a substantial departure from the approach of the Griffiths Committee when they still regarded as an essential ingredient in insider trading, that the information has its genesis from within the corporation.
If I could then move to the text of the legislation. The starting point, of course, is section 1043A which is the prohibition in respect of which Kizon and Mansfield were prosecuted criminally. Prohibited conduct by a person in possession of inside information and:
(2) Subject to this Subdivision, if:
(a) a person (the insider) possesses inside information –
and then what follows I will not take the Court to. That, of course, then takes us back in terms of being informed as to the meaning of “inside information” because in 1042A an:
inside information means information in relation to which the following paragraphs are satisfied:
(a) the information is not generally available –
et cetera. That then takes us back to the meaning of “information” to the extent that it has been extended to include matters of supposition, et cetera. I repeat the point we made earlier, that neither the ordinary meaning or the extended meaning incorporate lies in the manner in which we have sought to identify them in this case.
There are other provisions in the Act which we submit support the contention that it was not intended that information include falsehoods. Given what we submit historically has been the connection between the information and the company or the information and the person entitled to it, falsehoods do not sit comfortably with that notion. The company, for instance, we submit, if the information is set to derive from within a company, the company cannot be possessed of two sets of information if the case has been put on objective facts.
Here, for instance, the expected turnover and profit projections for the company and that which was being spruiked by its managing director had no correlation one with the other. Either the company has the information or the company does not. It is confidential to the company or it is not. What was being spruiked here by Day, the Crown did not satisfy in any basis, had any connection with any information connected within the company. Nobody was called from the company except Dean Shannon who operated as a consultant. He was the proprietor of Today’s Success and that was the only arm of AdultShop that made a profit; all the rest made losses.
BELL J: It is one thing to maintain the submission that information does not embrace falsehoods, but underpinning President McLure’s reasoning was the rather different proposition which is the idea that inside information must be information in the possession of the entity entitled to have or use it. Are you going to take us to the text in order to show where that implication comes from?
MR SHIRREFS: It is, in our submission, the other side of the same coin because it means, if one analyses it, that what has been spoken of, both in terms of the ordinary meaning or the approach of President McLure, that information that is a known lie actually does not exist. It is not information. What is concerned with here in terms of Division 3 on the analysis of President McLure is the connection between the company and the information. I will just grab volume 9. The starting point at volume 9, can I just start at page 2861.
HAYNE J: Which paragraph?
MR SHIRREFS: Paragraphs 3 and 4. I am not going to take your Honour to them in detail but just to point out that there her Honour looks to the particulars which were the information as pleaded put against the two accused and that became important to her ultimate determination of the appeal because of the manner in which it was particularised. By contrast, Justice Buss did not refer to the particulars other than in passing in paragraph 26 and did not relate in his judgment the legislation to the case that was put before the jury. Her Honour then, at page 2863, paragraph 10, deals with:
The word ‘information’ is wide enough in both its natural and ordinary meaning and extended meaning to include hearsay. It also includes matters of opinion, actual or likely intention and assumption.
We accept that –
The clear implication is that ‘information’ is actually connected with a person or entity.
We say that implication arises out of an analysis of Division 3. Once you have that connection and if the connection arises because of the words “generally available” – as I said earlier, the information is generally available, it is not generally available and if it is not generally available, it is connected to the entity that has it – that connection is important. At paragraph 12, she refers to:
For analytical purposes I will refer to information ‘not generally available’ as ‘confidential’ information.
That is the precise expression which is found in the Griffiths Report. The expression “confidential information”, that descriptive is borne out by both the history and, more important, the legislative scheme by the words “generally available” or “not generally available”. It becomes confidential. She then refers to, for instance –
That is, there will be a person or persons entitled to possession of the confidential information and/or entitled to use or act on it.
That is to be found in the defences, in sections 1043I through to J, where the person in possession of the information, 1043I, an exception for knowledge of a person’s own intentions or activities, because the information is their information as to what they are proposing to do or what they have knowledge of, they are exempted. So there is that connection to the person and that person is not captured by 1043A. Nor is a company in – that is H. Section 1043I is “Exception for bodies corporate”. The body corporate has information which is not generally available. It is information about a proposed takeover or it is information that has come into their possession as a result of the drill being sunk in the tenement and something being discovered. That is information. They have it. They then act upon it in a particular way. As long as they come within 1043I, they are able to.
HAYNE J: I am not sure of the example you give about the drill results. Section 1043I(1), at least, concerns exempting the body corporate from liability merely because it is aware that it is going to buy.
MR SHIRREFS: That it proposes to enter into – yes:
the body corporate is aware that it proposes to enter into, or has previously entered into or proposed to enter into, one or more transactions or agreements in relation to financial products issued by the other person - - -
HAYNE J: Yes. That is, the acquirer in an on-market takeover is not forbidden from buying because it knows that it is going to attempt full takeover.
MR SHIRREFS: My example was not the right example, but the point is still good in terms of the application of the defence. I accept what your Honour says. Her Honour the President then in paragraph 13 said that:
Inside information is widely defined to include confidential information that ‘belongs to’ the person who trades in the relevant securities.
Well, whether it belongs to or what, they are possessed of it in the sense that they have the information and they entitled to act on it. That is evident from the defences that I have just taken your Honours to. The definition of inside information also includes confidential information belonging to third parties, as it does, and that was this case. Her Honour then says in paragraph 14 that:
When the definitions of ‘information’ and ‘inside information’ are considered together, the evident statutory - - -
HAYNE J: Before you come to that, the sting in the proposition is in the second last sentence in paragraph 13:
However, those two categories must cover the field.
MR SHIRREFS: Yes, and they must, in our submission. Paragraph 14 then deals with both the definition of information within 1042A and inside information being considered together to give the evident statutory intention, which is in relation to confidential information in the possession of the entity. Now, your Honour raised that earlier with my learned friend. As her Honour says:
That is, inside information must actually exist –
We say that is correct and must be correct, both in terms of the ordinary meaning of information and an analysis of what is meant by inside information. It is not inside information simply because a real insider communicated it or because it was in the possession of the accused. Just dealing with that for a moment, section 1042G is also instructive. This is concerned with an officer of a body corporate:
For the purposes of this Division:
(a) a body corporate is taken to possess any information which an officer of the body corporate possesses and which came into his or her possession in the course of the performance of duties as such an officer –
That gives meaning to what is considered there to be information. The body corporate is deemed to have the same information that the officer has in circumstances where the officer became possessed of that information as a result of that person’s honest execution of their performance of duty as such an officer. Now, that, in our submission, supports the notion that when one is dealing, for instance, with a company, with a corporation, it is information that actually exists, and what information the managing director has is then held to be information that the company has, provided that that information the managing director has, he has it as a result of his connection with the company. In other words, it actually exists. That was not a section which was referred to by her Honour in her judgment, but supports, we say, the conclusions that she arrived at.
Given that we are here concerned with a criminal prosecution, so that the accused is placed at risk of loss of liberty, the usual principles that apply in terms of statutory construction, in our submission, should be borne in mind. So one then comes to consider what are the elements of the offence with which we were here prosecuted, and what has to be established by the prosecution?
HEYDON J: What are the usual principles, that ambiguity is construed against the prosecution?
MR SHIRREFS: If there is ambiguity, one should not extend the range of criminal liability to capture persons beyond the line. You do not give it here the broadest possible imaginary expanse, which we say has occurred, so that anybody who is told a lie which is not otherwise generally available can be prosecuted, and that the only test then is materiality. That, we say, distorts the underlying policy because we are not talking about relevant market information in the first place; we are talking about information that should not be in the marketplace. So her Honour says:
In order to establish that an accused is in possession of inside information for the purposes of s 1043A(1), there must be a proven correlation or correspondence between the inside information in the possession of the accused -
That case here as particularised against Mansfield and Kizon, as said at page 83 of the opening that I took your Honours to at the outset, the case being that Mansfield and Kizon were “possessed of knowledge” of particulars a and b. That is the information, and the correspondent and the inside information in the possession of the entity entitled to it. The entity entitled to it was AdultShop or its managing director in the course of his duties as a managing director of the company. He was entitled to that information, provided he was acting honestly.
One is entitled to conclude that within the accounting division of AdultShop there were books of accounts and records both in terms of past history, present situation and forecasts for future profit and earnings that could be drawn from past and present profit and turnover, so that the company was possessed of information, rather than what occurred here. Your Honours have not got the page references, but what occurred here, so I can give some texture to it, is that the evidence relied upon in proof of count 1 was a conversation between Mansfield and Kizon on 6 January, which is referred to, in which Mansfield has clearly had a meeting with Day and Mansfield is saying what he says Day told him.
Now, as to whether or not that in fact was a reference to the financial year ending 30 June 2002 was a matter of guesswork, but that is neither here nor there for the current debate. Mansfield says what he says as to what he has seen, what he has looked at. The next piece of information in the evidence was when Dean Shannon came to give evidence and he gave evidence of critical importance. It was in relation to the ASX announcement that occurred on 13 May 2002 in which AdultShop posted projections insofar as profit and turnover and the likelihood were concerned both for the financial year ending 30 June 2002 and the financial year ending 31 December 2002.
Shannon said he did not know that these were for the purpose of an ASX announcement; he received a telephone call from Day, he said, what are the cash sales and profit expectations for the next quarter and the next six months, and Shannon said he did them in five minutes on the back of an envelope and did not take into account a whole lot of things that were - otherwise if he had known it was for an ASX announcement he would have done including charge of acts and all sorts of losses.
In April of 2002 AdultShop was suffering massive problems in relation to fines imposed by Visa, arguably $4 million, and they were looking at a $400,000 loss, and Today’s Success was the only arm of the company that was making a profit. Shannon says that, having sent the figures back to Day he gets a telephone call and he is told they are not good enough, you have got to increase them, and he was told to arbitrarily increase them on the basis of what Day was saying to him, and he said he put them in and they were just a complete guess.
KIEFEL J: What do you say of President McLure’s opinion at paragraph 16 on page 2864? This is in connection with her Honour’s requirements that there has to be a correspondence with the information and the internal affairs of the company.
MR SHIRREFS: Yes, “or internal workings of the entity entitled to possess it”.
KIEFEL J: Yes. Her Honour goes on to say that if there is information of a rumour it must be a rumour within the company but there does not have to be proof of the truth of the rumour.
MR SHIRREFS: No.
KIEFEL J: So what her Honour is saying does not really have to do with truth or falsity. It has to do with it being - - -
MR SHIRREFS: But as a rumour within a company, the company is possessed of that rumour.
KIEFEL J: It becomes information of the company even though it is not true.
MR SHIRREFS: Yes, I accept that. That is a rumour. We are not here dealing with rumours. We are here dealing with facts.
KIEFEL J: No, no, but the point about truth or falsity still depends upon this.
MR SHIRREFS: The rumour may not be true, but it is a rumour, and the rumour exists as a fact.
HAYNE J: Does it then come to a point – or this aspect of your argument come to the point that the information, the only information with which Division 3 is concerned is information of the company whose shares are traded?
MR SHIRREFS: No, it does not. In the Rivkin example I gave earlier, the information was the information of Rivkin of his intention. The entity is not limited to being the company. The entity is the corporate entity or the natural person who is possessed of it. So in the Rivkin situation where he is going to buy a large allotment of shares, which if known publicly would affect the share price, he is entitled to that information as to his likely intention.
At least he has that belief, or has that likely intention, honestly held, as opposed to spruiking a lie which was what we say occurred here. What we ultimately say is if information, and inside information for the purposes of Division 3, does not extend to lies or falsehoods, which is what our position is, then in a prosecution in a criminal case it is incumbent upon the Crown to negate that which is the information particularised does not fall into that category.
They have to establish that beyond reasonable doubt. Otherwise the distance of the reach of this division from that contemplated, we submit, both by the Griffiths Committee and by the Parliament is extreme. Unless there is anything further that the Court would like me – before I do sit down. I was dealing with some of the facts and I am conscious of the fact also that it was not set out in the submissions as to the relevant facts concerning what we say were demonstrable improper and indeed dissemination of false information by Day.
HAYNE J: But it is enough for our purposes, is it not, for you to say that the information was not proved beyond reasonable doubt to be true?
MR SHIRREFS: Indeed. Well, the prosecution did not prove beyond reasonable doubt that it was inside information.
HAYNE J: Yes.
MR SHIRREFS: That was because they did not negate the reasonable possibility that it was a lie and a falsehood. That is the approach.
HAYNE J: Yes. Thank you.
MR SHIRREFS: To the extent that I have prepared a summary, while it is interesting reading, it does not go beyond that.
BELL J: Do you say that is the same thing as the failure of the prosecution to establish that the information corresponded - - -
MR SHIRREFS: In whole, the material part.
BELL J: In whole, the material part - - -
MR SHIRREFS: Of actual information in the possession of the entity entitled to it.
BELL J: Yes.
MR SHIRREFS: It comes to the same end point.
BELL J: In any event, if you take the latter point - - -
MR SHIRREFS: Except to this extent. If it is a lie, it is a lie. The example of Rivkin or Packer having 4.9 or 3 per cent, to make that point it gets to the same end product, as to whether there is a material correspondence. That is the only difference and we say it is a minor difference. Unless there is anything further that I can assist the Court with.
HAYNE J: Thank you, Mr Shirrefs. Yes, Mr Woinarski.
MR ZICHY-WOINARSKI: If your Honour please. Your Honours, just on that very last point, if I may, we say that the context in which the Court needs to consider the questions before it, is that set out effectively in the ruling of his Honour Justice Wisbey at page 536 in appeal book volume 2. I do not want to buy into an argument about how wrong it was or how inaccurate it was or anything like that, but the concession that was made is adequately and correctly put, in our view, on page 536, the very last paragraph on that page where it refers to the concession that we made.
Now, may I, with your Honours’ permission, go to the second volume of the material and take your Honours to the explanatory memorandum at paragraph 342 on page 679? Your Honours, I want to go particularly to paragraph 342 which commences just above line 40 and it is the last sentence:
a person who, for example, overhears information in a lift or on the street and trades on the basis of that information would only be in breach of the provisions if he/she was aware that the information was inside information.
By the use of the words “inside information” there, picking up on what has been said, it must come back to whether it is not generally available and material. Now, the point we are seeking to make from that is that at the time such a person – and it may be a complete outsider, somebody who knows nothing at all about the company or anything like that – receives that information, the likely situation, as with many insiders, is they will have no idea whether the information is true, partially true, inaccurate or to go to the extreme, a complete falsehood or lie.
The prescribed offence is trading whilst in possession of inside information and what is being conflated here, with respect, by our learned friends is the possession of information which arguably and, we say, does properly fall within what is said to be inside information by section 1042A with the addition, subsequently, with hindsight, of an additional piece of information, namely, that what you were told on that day and what you possessed and traded with was false. Now, in our submissions we have referred to a decision of Campbell v R, which is a decision of the New South Wales Court of Appeal. It is referred to in our submissions. We have just footnoted it. It is it referred to in our submissions at footnote 30 on page 14 of our submissions in response to those of Mr Mansfield. So it is page 14, footnote 30 and the point is that:
The physical and fault elements of an offence must coincide in time.
That is the point we make in the very first line of paragraph 47 at the top of page 14. So what we say, with respect, the Court has to concentrate on is what was possessed by an accused person or the appellants at the time the trading occurred. It is very clear on the information that is on the recorded material – and I do not want to have to take the Court through any of that unless it is absolutely necessary – but it is very clear, when one hears what is on the recorded material, that in respect to the AdultShop counts, none of the information was disbelieved by either of the appellants, none of the information was regarded other than as price sensitive as far as they were concerned and when one looks at it as it is particularised, a reasonable person could regard it as being material; in other words, likely to affect the price at which one acquires or disposes of Division 3 financial products.
There is nothing on any of the recorded material, right up to the very end of what was played to the jury, to suggest at any stage up until then that the appellants had any knowledge as to the falsity, to use the extreme way that it has been put here or as to the fact that it was not accurately correct or to use the trial judge’s term, a factual reality.
BELL J: What does the reasonable person know for the purposes of inside information in little paragraph (b) of the definition? Does the reasonable person know that the information is false?
MR ZICHY-WOINARSKI: I am sorry, your Honour, could you – I just did not have the section in front of me and it was my fault, your Honour.
BELL J: I am sorry, it is the definitions section, 1042A.
MR ZICHY-WOINARSKI: Section 1042A, yes.
BELL J: The way the argument is put against you is that false information could never be held by a reasonable person to have a material affect on price.
MR ZICHY-WOINARSKI: I understand that, your Honour.
BELL J: How do you meet that?
MR ZICHY-WOINARSKI: Your Honour, that is why I have referred to Campbell v R because at the time the information is possessed, that is the time at which one has to determine whether or not a reasonable person would believe it had that effect.
BELL J: One understands that the accused, on this submission, had that belief, but we are looking at what is embraced by the reasonable person for the purpose of the definition.
MR ZICHY-WOINARSKI: Certainly. So what one does, in our submission, is let us say the trading occurred on 1 January, just for simplicity, and we can prove that on 1 January they possessed the information particularised in count 1. Then one says a reasonable person in possession of that same information, would they expect it to have a material effect on the price? So it is a coincidence in time with the commission of the offence. It is not appropriate, in our submission, to then look at that question so far as the reasonable person is concerned with the benefit of hindsight because then one, as we have pointed out in our submissions, and I cannot remember the exact paragraph, but then one might have a situation where there is a prosecution where the inaccuracy of the information had not been known and a subsequent prosecution where it was and all sorts of conflicts would follow.
So, in our submission, it is important that one looks at the information that was possessed at the time of the offence and one assesses whether that falls within the definition of “inside information” at that point of time and one does not get distracted by looking as to what might have occurred two or three months down the track, or two or three years later.
HEYDON J: If you look at this from the hearer’s point of view, Mr Day speaks to someone and the someone believes Mr Day. Do you say, if the information were generally available, a reasonable person in the position of the hearer would expect it to have a material effect or is it wider than just a reasonable - - -
MR ZICHY-WOINARSKI: I think it is a reasonable person as in generally within the community, your Honour.
HEYDON J: Reasonable person in the position of Mr Day would expect it to have a material effect on the price.
MR ZICHY-WOINARSKI: I am sorry, your Honour. I just missed something you said. I do apologise.
HEYDON J: A reasonable person, for example, in the position of Mr Day would expect information about a large and wealthy investor buying shares to have an effect on price because those who would hear that, unlike Mr Day, would believe it to be true and would not know that it was not true.
MR ZICHY-WOINARSKI: I think, your Honour, the answer to the question you are asking me – and if I am not dealing with it, please tell me so – but the reasonable person there is not Mr Day, but a reasonable person who receives the information from Mr Day, that reasonable person having received the information, including the fact that it came from Mr Day who was the CEO of AdultShop.com, would they expect it to have a material effect on the price or value of the Division 3 particular product, in this case Adultshop.com shares.
HEYDON J: And the reasonable person assumes the truth of the statement.
MR ZICHY-WOINARSKI: No, your Honour. The reasonable person is entitled to look at the statement and say whether or not they would expect that to be accurate or not. There is an example given by our learned friend, Mr Bennett, in relation to something you pick up in a taxi and it is suggested by Mr Bennett, well, once you are told something by a taxi – let us say about BHP – you cannot go and buy BHP. Well, given the notoriety of taxi drivers for rumour and so on and knowing everything but knowing nothing and having all sorts of opinions, the reasonable person is not going to say that what the taxi driver has said to me is likely to be true or likely to be something which I can act upon and, therefore, I would not expect it to have a material effect on the price of the shares.
KIEFEL J: But truth or falsity in relation to the effect upon other persons, truth or falsity is not built into section 1042D, which I do not think has really been referred to in any great detail, which deals with “When a reasonable person would take information to have a material effect”, and that is when it is likely to influence persons who commonly acquire financial products in deciding whether or not to acquire or dispose. That is what they are turning their mind to, as required by the - - -
MR ZICHY-WOINARSKI: But if you get it from the taxi driver, they are not likely to accept it as being true.
KIEFEL J: No. All I am saying is the statute has got nothing to say about truth or falsity.
MR ZICHY-WOINARSKI: I agree.
KIEFEL J: It is about considerations upon the effect of persons buying or selling in the market.
MR ZICHY-WOINARSKI: I agree with that. Can I just take the Packer example. If I, as the managing director, took this Court aside and said, “I have just had a phone call from Mr Packer and he is going to buy 4.9 per cent of my company. He does not want to go any further than that, but he is going to go to 4.9 per cent of the company”, and he is somebody you believe is a believable person. You have had dealings with him. You know his reputation and things like that. We say that, providing it is not generally available, a reasonable person in those circumstances is likely to say that information, I would expect it to have a material effect on the price of shares. In those circumstances, we would say, even if it subsequently turned out to be false, you are caught by the prohibition on trading and you possess the information, there are no problems about possessing the information, but you would not be able to trade until that information became generally available.
Now, obviously if the information is not released or something of that nature, your view as to the truthfulness or the acceptability or the reasonable man’s ability to accept that as being something which one can act upon may change and it may be that initially something falls within the question of inside information. The fact that it is not released may affect whether it is inside information or, indeed, whether it is going to have a material effect because of the time span. One has to look at those things, we say, to determine whether or not it is inside information. Now, just turning away from that - - -
HAYNE J: Well, just before you do.
MR ZICHY-WOINARSKI: Certainly, your Honour.
HAYNE J: The appellants urge us to begin with the dictionary definition of “information”. Relevantly, that at least includes knowledge communicated about a subject matter. Knowledge communicated about some subject in this case is particularised – see page 31 – as expected profit, expected turnover of the identified company.
MR ZICHY-WOINARSKI: And the source too, your Honour.
HAYNE J: I understand that. The effect which is to be determined in accordance with 1042D is an effect having regard to the content of that information, namely, expectation, expected profit. This does not mean expected by the taxi driver, this means expected by the company. Now, that is the way I would understand the case to be run.
MR ZICHY-WOINARSKI: Your Honour, can I come to the dictionary definition in a moment, if I may? Can I just say this about the particulars and we just need briefly to take your Honours to the particulars to just demonstrate the point, if I may. If we could have volume 1, and if your Honours could go to Count 1, which is at page 31. I just want to make this point briefly, if I may. Count 1 is the conspiracy count and it sets out that they were possessed of information to the effect of a, b, and c. Then if one looks at Count 1A and following, you will see that they are substantive counts against the appellant, Mr Mansfield, alone and they express identical particularisation.
If I could then take you to volume 9 of the appeal books and, in particular, to page 2910, and this is in relation to one of the notices of contention. The second notice of contention one can pick up that it related to the evidence at the close of the Crown case. It was incapable of establishing the existence of each conspiracy. That is at paragraph 135 of the judgment. But at paragraph 183, his Honour sets out that:
According to counsel for Mr Mansfield and counsel for Mr Kizon, the Crown’s case against each accused was that they possessed ‘specific knowledge’ (being the state of affairs set out in the particulars of each count) including the source of that knowledge (being a company insider).
Now, the simple point that I am taking the Court to that is that it is not the divorcing of the source that has been submitted to you was the way in which the Crown put its case below. I have dealt with it elsewhere in our submissions and I am not going to repeat what we have got in our written submissions.
Turning back then, if I may, to your Honour Justice Hayne’s question, and accepting that the accused possessed specific knowledge, being the state of affairs set out in the particulars, including the source, what they had was information relating to the expected profit and turnover of this company coming from the managing director.
HAYNE J: That is expected by the company.
MR ZICHY-WOINARSKI: Correct, your Honour, and that is the information that was conveyed, and the reasonable man, we say, would say, within subsection (b), that that is likely – would expect it to have a material effect on the price.
BELL J: How do you deal with President McLure’s reasoning that the concept of information that is not generally available carries with it the idea that it is information possessed by an entity?
MR ZICHY-WOINARSKI: Yes. In part we say that comes about because she misunderstood that phrase “the genesis of insider trading” in the Griffiths Report. May I just demonstrate why we say that is where her error comes about. Could I again take your Honours to volume 2 of the material? Your Honours have been taken to this and I apologise for repeating it, but it is necessary just to demonstrate the point that your Honour has just raised with me. If I could ask the Court to go to page 724. Your Honours will see at line 20 that we start with 4.3, “Definition of an insider” and then we flow down to the conclusion that your Honours were taken to, certainly by my learned friend, Mr Shirrefs, and we see that sentence:
The offence of insider trading must have its genesis in the use of information derived –
et cetera. I will come back to that, if I may, in a moment, but if the Court could then turn over the page. What we then come to is not who is an insider, because that is what her Honour was dealing with, we then come to what is to be inside information, and that is to be seen at about line 28, 4.4, “Inside Information”. The Griffiths Report then flows on to discuss the question of inside information and its conclusions commence at 4.4.11 on page 727, and it is relevant to what has been discussed by the Court today both with myself and our learned friends that:
To be relevant to the offence of insider trading, the information used as the basis for such trading must be likely to affect the price of the securities in a material way.
KIEFEL J: But understanding what the questions are for the reasonable person and then going back to the case which the prosecution put, is there not a distinction between the case put by the prosecution as being that the company says the anticipated profit is X as distinct from a case that Mr Day gives as his opinion that the company’s profits would be X? Do you understand what I am putting?
MR ZICHY-WOINARSKI: I do. May I just see if I have got it right. Mr Day says the company expects to make a profit of so-and-so?
KIEFEL J: Mr Day gives his opinion, which may or may not depend upon information coming from the company, whereas what appears at page 31 in the particulars might be read as conveying a case for the Crown that what was conveyed was that the company, through Mr Day, has said that the profits will be X, which is to convey company information rather in the style of what Justice McLure was saying, conveying actual information of the companies and giving thereby greater credence to it.
MR ZICHY-WOINARSKI: Can I deal with both aspects of that?
KIEFEL J: I see the time.
MR ZICHY-WOINARSKI: I am quite prepared to come back to it after lunch.
HAYNE J: If it is convenient. We will adjourn until 2.15 pm.
MR ZICHY-WOINARSKI: If your Honours please.
AT 12.46 PM LUNCHEON ADJOURNMENT
UPON RESUMING AT 2.17 PM:
HAYNE J: Yes, Mr Woinarski.
MR ZICHY-WOINARSKI: May it please your Honour. Your Honour Justice Kiefel asked me a question before lunch and I just wanted to make sure that I have not written it down wrongly but, as I understood your Honour, we were contemplating whether there was a difference between Day saying the company will report certain turnover and Day saying I think or I expect the turnover will be X or whatever it is.
KIEFEL J: Yes. What I was really getting at was any way of seeing the particulars as conveying something emanating from within the company about what the company said as distinct from Mr Day’s opinion, but, on reflection, there is probably nothing in it. What Mr Day said is going to convey what the company - - -
MR ZICHY-WOINARSKI: What the state of affairs of the company - - -
KIEFEL J: What was thought to be. He would not have an independent opinion other than to a person receiving information. He would not be conveying anything other than what the company’s profits were or expected to be.
MR ZICHY-WOINARSKI: Perhaps to damage myself but I think, in fairness, it may be if you removed oneself from the immediacy of the Day AdultShop position and one went to – I am going to take an extreme type example and, as I say, it may not be a very good example – if an employee of BHP, let us say a middle-management level, was to say the company will report X as against I expect or I think will report X, there may be some difference in the mind. I am not sure that it is a good example but I have actually agonised – agonised is exaggerating it slightly – but I have contemplated what your Honour put to me over the lunchtime to see whether there really was a significance. At the end of the day, I think it comes down - - -
KIEFEL J: Not in this scenario perhaps.
MR ZICHY-WOINARSKI: No, I do not think so. Could we just say one last thing about the particulars, and I do not need to take the Court to them, but what the particulars in each case did was to – and I am at page 31 of volume 1 if the Court wishes to follow me – was to say in the third paragraph of Count 1c that the information in a and b:
had been obtained on or about 4 January 2002 as a result of private conversation between –
et cetera. We say that the use of the words “had been obtained as a result of a conversation” really is no different to the particulars in Rivkin where it was said that Mr McGowan said a, b and c. It is clearly, to the person who is reading, the same thing. It is the same as saying Mr Rivkin said obtained in a conversation is the same as saying how, why and when it was said.
Can I then move on to the dictionary meaning of “information”, and the dictionary meanings are set out at the end of volume 2. We do not want to rehash what is in our written submissions and what is in our written outline, but can we just make this point very clear, that despite what we understood our learned friend, Mr Bennett, to say this morning, we do disagree with their interpretation of the meaning “information”. We say the word “information” in its normal and natural meaning can include things that you are told which are inaccurate, wrong, in error, even to the extreme of falsity. You are, to the extent of what you are told, informed by that and information, as we say, can be wrong.
KIEFEL J: It might be ill-informed.
MR ZICHY-WOINARSKI: It might be ill-informed. But the error of the information may not become apparent for some time, indeed, for some centuries and for centuries, as we all know from what we have been informed, but for millenniums, the sun revolved around the earth until Galileo otherwise informed us. So to say that information must be factually correct, we say is just too wide an attempt to escape the provisions of the legislation.
CRENNAN J: Once it is communicated, I expect you would also say that whether it is true or false, it is possessed.
MR ZICHY-WOINARSKI: Correct, your Honour, and I think we have made that point in our written submissions, but that is certainly – can I just very simply say this about the facts, and again we really do not want to go into them, but if one trawls through all the various recorded material, it is very clear that each of Mansfield and Kizon, through the conversations, became possessed of the relevant information identified in the particulars and from whom it had come.
Now, we say in our written submissions that the use of the term “false information” is not novel to the law and, indeed, we have had your Honours’ attention and there has been discussion in particular with some of your Honours with our learned friends this morning about the market manipulation provisions. We simply want to say this, that in Chapter 7 where we have got market misconduct and we have got insider trading provisions all within Division 7.10, it is unlikely that the word “information” in the market manipulation provisions is intended to mean more than it does in the insider trading provisions where the definition of “information” is expanded by 1043A so far as “information” is concerned.
The reason we say that is that if our learned friends’ submissions are correct, as information cannot be a lie, it cannot be false, then the word “false” in relation to information is describing something which is not information and therefore there is no such thing, according to their submissions, as false information. I think we have touched upon the test of materiality and I do not propose to repeat ourselves there. Can we just say this. There is one other aspect we just wish to touch upon so far as the extended definition for the insider trading provisions is concerned relating to suppositions and intentions.
We say that the definition, as is contained, of information extending to include suppositions and intentions would include a person who receives information, properly described as not being generally available and material, who then forms a supposition or forms a conclusion, perhaps a supposition about intention. So that it does not have to be a supposition which is communicated to the insider or an intention which is communicated to the insider and that is consistent with both the decisions in the Citigroup Global Markets Case – and I will just give your Honours the references to the paragraph numbers if I may – at paragraphs [538], [540] and [542] and so far as similar conclusion was reached in relation to Hannes, that is to be found in paragraph 441 of Hannes [No 2].
Now, may we say two other things about our opponent’s first two grounds or proposed grounds of appeal. The first one which relates to the way an insider trading case would need to be run were they to be successful in relation to the first two grounds. It would, in our submission, in many cases increase the factual issues in the prosecution and it would also alter the focus from whether or not the person who had been charged was in possession of inside information because the prosecution would need to prove the objective truth of the information identified or at least prove its truth in a material part, and how that of itself would be determined is another question and, of course, it has already been raised by your Honours with our learned friends in relation to the Packer counts. The proposed third ground of appeal – and I want to say something more about that before I finish – would raise similar issues so far as connectivity or connection with the company is concerned.
Finally, so far as their arguments are concerned in relation generally, before I move to something I just wish to say briefly about the decision of President McLure, can we way this, that their arguments seem to suggest, so far as they rely on section 1041I, to be really a case of cutting your cake and eating it or heads I win, tails you lose. They would say that their clients, trading on information which they believed at the time was true in material – it does not really matter but which the reasonable person would regard as inside information – but which is later shown to be false and in circumstances where they made losses would be able to recover those losses. The corollary of their argument is that if they made profits – and we know, for example, they did make some profits – that if they made profits, they would not have to disgorge those profits in an action under 1043L because the information they possessed, they would say, is not inside information. Now, we say that would lead to a ridiculous result.
Section 1043L is the ability to take proceedings to recover where you have suffered loss – compensation for damages suffered by a person disposing of Division 3 financial products where the other person had inside information. Similarly it is 1043L(3) and (4) in the particular cases here. May we just turn very briefly to the decision of President McLure. We have already had to say what we want to say about her reliance upon the Griffiths Report and that passage referring to the genesis of insider trading.
The third ground of appeal which is really picked up from what her Honour says at paragraph 16 – this is at page 2864 of volume 9:
An accused will be in possession of inside information if it is proven that the inside information in his or her possession corresponds in whole or in material part –
Now, we have already dealt with the question of correspondence and the like, but it is that paragraph, or that phraseology, which our learned friends pick up in ground 3 of their notices of appeal, and I am having regard particularly in this to the grounds of appeal of the appellant, Mr Mansfield, at page 2980, and I did say I wanted to say something about ground 3. The Court will see ground 3, which is paragraph 4 on page 2980, is that:
The Court below erred in failing to find that it is an element of the offence of insider trading –
et cetera, must correspond, et cetera. Now, I must admit that this was something that occurred to me in the weekend, but section 3.1 of the Criminal Code provides that:
An offence consists of physical elements and fault elements.
Section 3.2(a) of the Code requires:
for a person to be found guilty of committing an offence the following must be proved:
(a) the existence of such physical elements as are, under the law creating the offence, relevant to establishing guilt –
section 1.1 of the Code provides that:
The only offences against laws of the Commonwealth are those offences created by, or under the authority of, this Code or any other Act.
Now, the point we wish to make very simply is that either information has as its meaning that which our learned friends agitate for, in which case it becomes the meaning for the purposes of the offence created by 1043, but you cannot, we say, in our submission, in this Court, cannot introduce an extra element into the offence. Now, subject to any questions that the Court wishes to ask us, those are our submissions.
HAYNE J: Thank you, Mr Woinarski. Yes, Mr Bennett.
MR BENNETT: Just several brief matters. It fell from my friend a moment ago when he talked of the proposition that our reliance upon 1042I was a case of having our cake and eating it too, or cutting our cake and eating it too, that heads we win and tails we win as well, if we trade and make a loss then we seek to recover it under the civil damages provisions, if we trade and make a profit, we seek to avoid disgorgement. That is not the proposition we advance. My friend puts it to you on making the aside, which is wrong, that we know they made money. That is not the evidence that was at the trial. The evidence at the trial was my client lost money. The only aside was, with respect, inaccurate.
Our proposition is that the simultaneous conveying of a right of damages is inconsistent with the liability and we do not seek to say we fall under both sections simultaneously and the proposition that my friend advances assists in what we say. My friend’s proposition that supposition can occur in the mind of the recipient, we accept. We accept that in our written submission. If the recipient sees flakes of metal and thinks that that is gold and acts in reliance upon that, that may be an error on his part if it turns out to be iron pyrite. It is known by the colloquial expression, fool’s gold. That is his error, but he does not engage then in insider trading if he sees flecks, supposes it to be gold, assumes therefore that the core sample represents a valuable deposit and trades in the securities of the company.
That supposition needs to be considered, but we accept the general proposition that it can lie in the mind of the recipient. Before lunch, my friend raised this connection between the physical and the fault element, Campbell v R. It is the authority to which he referred your Honours; it is footnoted on page 14 of his submissions. We accept entirely the proposition that is advanced in Campbell, that there has to be coincidence with the physical and the fault element, but that does not detract from the proposition that we advance, and that is that you measure the quality of what is said to be information at the time of the conveyance of the information to the recipient. If, on our analysis, it is an untruth or it is a falsity, then it is simply not the transmission of information within the meaning of the offence provision at that time.
What my friend conflates by that proposition is to say, if you subsequently discover it to be a falsity, then it changes its character. We do not put that as a proposition. We say it is necessary to assess what is said to be information at the time of the communication, that is, the coincidence of the fault and the physical element as enunciated by the Court of Criminal Appeal in New South Wales in Campbell’s Case, but you assess it with the knowledge that it is false, and if the knowledge is false, then on our primary submission, it does not fall within the concept of information that is picked up by the offence provision.
The proposition my friend was putting to you was then highlighted by his example where he asked your Honours to imagine that he was some managing director of a company and he took you into his confidence and he told you that Packer had bought 4.9 per cent, and then put the submission to your Honours that you are all then instantly sterilised from the ability to trade in the securities. Even if that be false, but then in some unexplained fashion – either the effluxion of time, evaporation, or a chameleon-like transformation – what is being conveyed to you, he said, ceases to have effect over a passage of time even if it is never made readily apparent or publicly known that what is put to you was false, and that you somehow in an indeterminate fashion regain the ability to trade in securities.
That highlights, in our respectful submission, the fallacy that he accused us of, that you assess quality of what is told to you over a period of time and separate physical from the fault element. You must assess it at the immediate time and if it is a lie, if it is a palpable falsehood in, as President McLure called it, a fraudulent misrepresentation in the facts of this case, then you assess then whether it has the capacity to be called “information” for the purpose of 1043A. It does not have some chameleon character that alters over a passage of time.
Your Honour Justice Kiefel raised with my friend the fact that 1042D, your Honour put, does not distinguish the quality of truth or falsity of the information, and your Honour inquired of my friend of that. We, of course, say that 1042D does because it introduces and uses the word “information”, and my primary submission, that can only be something that is not a falsity; it cannot be ill information at that point in time. So, we say that 1042D does posit that test.
The further question that was raised by your Honours with my friend on 1042D is whether or not the reasonable person hypothecated by the legislation at that point of time is aware of the falsity, and plainly they cannot be informed of the falsity at that time. They cannot assess it with a knowledge different from the recipient, so if the information is told to the person then you analyse the quality of that information on the hypothesis that a reasonable person would regard it as having an effect on the tendency of a person who commonly trades in the securities to acquire or dispose of the securities, otherwise operate on their purchasing or selling information.
CRENNAN J: What about a not unrelated point made by Mr Woinarski, which was that in the market misconduct provisions you have got express contemplation of false information in terms of your argument that information can never be false because then it would not satisfy your definition of “information”?
MR BENNETT: Yes, but when one looks at the provisions to which my friend was referring, if one goes into Division 2 – and your Honours find these in volume 1 of the material – you start in Division 2 at page 41, you do not find it in the market manipulation provision or in the false trading and market rigging, you do not find it in 1041C. You find in 1041D:
A person must not . . . circulate or disseminate, or be involved in the circulation or dissemination of, any statement or information to the effect that the price for trading . . . will, or is likely to, rise or fall, or be maintained, because of a transaction –
if that would contravene one of the sections. So that is dealing with information. The marginal note to 1041E is “False or misleading statements” which uses a neutral expression, not information, though we accept in the introductory chapeau to 1041E(1) the legislature provides:
A person must not (whether in this jurisdiction or elsewhere) make a statement, or disseminate information –
Then one sees within this, your Honour, a concept of the half truth there, so a false statement is caught by a statement is “false in a material particular” or information where it is “false in a material particular” and it is likely to induce persons to trade or acquire or dispose of financial products or “have the effect of increasing, reducing, maintaining or stabilising”. So the legislature never uses the concept of false information in 1041E by itself, but it adds it to a false statement, and we say it covers the circumstance of the partially false by use of the word “information”. Section 1041F is irrelevant to my friend’s contention. My friend says, no, it is not, so I am grateful for his – and he says (1)(c):
recording or storing information that the person knows to be false or misleading in a material particular –
if the information is stored there, and we say then it is not dealing with the proposition of the statement of the information being wholly false, but it is false or misleading in a material particular. When it is dealing with wholly false, it is under 1041F(1)(a) and the legislature uses the word “statement” rather than information. In 1041G it is dishonest conduct and 1041H is the misleading or deceptive conduct. So we say that on a closer reading of Division 2, there is no inconsistency with the express provisions with our argument that we raise in relation to Division 3.
Can I deal with a matter that does not appear from my friend’s submissions in paragraphs 9 to 12 but it was raised for the first time before your Honours today and with no notice to us? My friend took you to the reasons for decision of Appeal Justice Buss and, in particular, at page 2910, if your Honours turn that up. You will find that in volume 9. Your Honours recall that what was read to you was paragraph 183 of the reasons for decision and it was put to you in the context that although both myself and Mr Shirrefs had addressed you on the proposition that the Crown ran its case at trial in a fashion that did no rely on the source of the statement as part of the information, that this was put up in answer to that proposition. Now, before addressing that, can I remind your Honours that you would have seen in paragraph 5 of Justice McLure’s reasons for decision on page 2862 of this volume, paragraph 5, her Honour wrote:
The framing of the particulars is consistent with the way the Crown conducted its case at trial, namely, that the matters in (a) and (b) were the ‘inside information’ the subject of the charge. The matters in (c) were relevant to materiality and the respondents’ knowledge.
Can I tell you about the ground of contention in 2 to say that the reference to “source” that is referred to in paragraph 183 is not a reference to particular c in the exemplar of Count 1. Your Honours will see, if you turn over to page 2911 that Count 2 dealt with the conspiracy charges and your Honours need to cast your Honour’s minds back to 2010 when your Honours had reserved and were considering two decisions before the Court, R v LK [2010] HCA 17 and Ansari v The Queen [2010] HCA 18, two consecutive decisions that dealt with how one framed a conspiracy charge.
The argument that was put in the contention but not advanced here, you see in paragraph 187 and 188 for Count 1 The Crown’s case was that my client communicated the information in (a), (b) and (c) Kizon in a telephone call and the submission that was put at trial was the information in the trial of Kizon, the information in (a), (b) and (c) was hearsay and inadmissible to show that Kizon was possessed of that information. You see that, for example, in 190 and 191 it deals with Count 9 and in 194 and 195 it deals with Count 12 and so on. Then his Honour deals, under the heading “Merits” at page 2918, paragraphs 216 and following, the conspiracy point.
His Honour at 224 deals with your Honours’ decisions in LK and Ansari, and that goes from 224 through – and his analysis continues, but if I can take you to page 2931, his Honour, at paragraph 237, deals with the submissions that were made at the Court of Criminal Appeal, that we submitted that the conversations were hearsay communications by one accused to the other, and his Honour determines they are admissible on the basis set out in 238, 239. In 240 he adopts his earlier finding that falsity could constitute information, and in 241 determines that it was a case fit to be left to the jury on the conspiracy charge.
The point that I advance in relation to that is when you are taken to paragraph 183 out of context but it appears solely within the treatment by Appeal Justice Buss of ground 2 of the notice of contention, the reference to source was quite misleading in that it did not refer to particular c at all. Nothing in the conduct of my client’s case, either at trial or on appeal before the Court of Criminal Appeal, accepted that particular c was a particular of inside information. What was advanced in the passages in the transcript to which I took you to this morning, what was accepted by President McLure in paragraph 5 of her reasons, was it was never part of the Crown case. So it was never part of the Crown case that the source of the information was part of the information. It went to materiality as an issue, the secondary anterior consideration, we would say. There are no other points which we submit by way of reply. If it please your Honours.
HAYNE J: Yes, Mr Shirrefs.
MR SHIRREFS: I just seek to agitate one matter, your Honours, and that comes back to the meaning of “information”. Prior to lunch your Honour Justice Hayne raised with my learned friend, Mr Woinarski, the fact that we rely heavily on a definition of “information”. Your Honour referred to the Oxford English Dictionary 2nd edition and it is to that that I seek to address the Court. It is not a statement or communication of a fact, subject or event or the communication of some news of statement of some fact or occurrence. As your Honours will find from the passage that I handed to your Honours this morning, what is the essence of information is knowledge. Point 2 of the Oxford English Dictionary definition says it is:
The action of informing . . . communication of the knowledge or ‘news’ of some fact or occurrence –
or in 3 to which I took your Honours earlier:
Knowledge communicated concerning some particular fact, subject, or event - - -
BELL J: Can I just take you back to 2. It includes, “the action of telling or fact of being told of something.”
MR SHIRREFS: It can be, yes.
BELL J: And if one goes to 3, it is “that of which one is apprised or told”.
MR SHIRREFS: It is knowledge of what one is apprised, “Knowledge communicated concerning some particular fact, subject or event”.
BELL J: And “that of which one is apprised or told”.
MR SHIRREFS: Yes, “that of which one is apprised or told; intelligence, news”. The case was conducted on the basis of the definition in 3, not the definition in 2.
HEYDON J: But if you look at the examples which the Oxford English Dictionary gives under 2, Paley, “Difficulties always attend imperfect information” and an earlier one is, “This I have by credible informacion learned.” That implies there can be non-credible information.
MR SHIRREFS: That is knowledge. That becomes knowledge of what is communicated. I was to take the Court to the meaning of “knowledge” in the Oxford English Dictionary, if I could provide it to your Honours. It is knowledge, connotes, that it actually exists. It starts at the bottom of the middle column, the reference to “knowledge”. Point 1, that is very circular and does not really assist:
To own the knowledge of; to confess; to recognize or admit as true.
Of course, a confession is usually when somebody confesses that which they believe to be true. Point 2 is:
To recognize or confess (a person or thing to be something) . . . To recognize (one) to be what he claims; to own the claims or authority of.
And then 3:
To own as genuine, or of legal force or validity; to own, avow, or assent in legal form . . . so as to give it validity:
In our submission, what is connoted by knowledge is the notion that it exists, not a statement of some particular fact. It is knowledge communicated of a fact, subject or event, in our respectful submission, and that was not this case. Unless there is anything further I can assist the Court with.
HAYNE J: Thank you, Mr Shirrefs. The Court will consider its decision in this matter and will adjourn until 9.45 tomorrow morning for the pronouncement of orders.
AT 2.53 PM THE MATTER WAS ADJOURNED
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