483.4 In September 1997 JBL, in breach of s 1002G and s 232(5), caused, induced or encouraged Leemac to sell 1.75 million CCL shares for a net price of $1,028,087 and, in breach of s 232(5), caused Leemac to sell 1.75 million CCL options for a net price of $354,070 - a total of $1,382,157. Alternatively in September 1997 JBL caused Leisuremark and Blenheim to sell those shares and options to Leemac to enable Leemac to sell them on the open market, knowing that Leemac intended to sell them (the Leemac shares and options sale).
483 The plaintiff also seeks declarations of contravention of s 1002G and s 232(5) against Hall. It is alleged that between 4 November 1997 and 20 November 1997 Hall caused Leisuremark to sell through stockbroker Potter Warburg 538,400 CCL shares for a net price of $269,225 (the Hall/Leisuremark shares sale).
484 It is alleged that both JBL and Hall possessed information, acquired by them by virtue of their positions as directors of CCL, that, if generally available, would, or would be likely to, influence persons who commonly invest in securities in deciding whether or not to subscribe for, buy or sell CCL shares or CCL options. It is alleged that JBL and Hall knew, or ought reasonably to have known, that the information they possessed was not generally available and that it might have a material effect on the price or value of CCL shares or CCL options.
485 The material information alleged is that CCL's 1996/97 profits and Clifford's December 1996 half-year consolidated profits and 1996/97 consolidated profits, as forecast to the market or as published, materially overstated or misrepresented the true profits or consolidated profits. It is alleged that these profits included, to JBL and Hall's knowledge, the Clifford pre-acquisition fee of $1.45 million, the Ansair pre-acquisition fee of $800,000, the Signature pre-acquisition fee of $252,300, the Signature Exclusivity fees of $2.8 million, the Origin fee of $770,000 and the Revesby profit of $1.899 million.
486 Although there is no direct evidence as to whether those amounts were included in the forecast consolidated after-tax profit figures of $13.4 million and $14.256 million announced respectively on 11 August and 11 September 1997, the plaintiff submitted that the strong probability is that they were included. It submitted that the pre-acquisition fees had been included in the earlier December 1996 half-year consolidated accounts. The Signature Exclusivity fees, in relation to the six months ended December 1996, had been included in the earlier consolidated half-year accounts. The whole of the exclusivity fees for the ten months to April 1997 had been included in the earlier management accounts for the period to April 1997 and May 1997. The Origin fee was entered in Signature's 1996/97 accounting records on 1 July 1997. CCL's accounting records include an entry on 6 August 1997 to record the receipt on 30 June 1997 of a dividend from Austchas which, according to Austchas' signed accounts, was paid out of the Revesby profit. In those circumstances the plaintiff submitted that it is strongly probable that those amounts were included in the figures as announced. I agree. I am satisfied that the figures as announced included these amounts.
The Notretoil Share Sale
487 Between 22 August 1997 and 17 September 1997 Notretoil sold through a stockbroker, Epic Securities, 1.5 million CCL shares for a total net price of $924,409. The instructions to the broker to sell the shares were given: (a) as to 600,000 shares, directly to the broker by JBL on 22 August 1997; (b) as to 400,000 shares, by Ellis, at JBL's direction, to the broker on 3 September 1997; and (c) as to 500,000 shares, by Karen Mackey, JBL's personal assistant, at JBL's direction to the broker on 16 September 1997. The sale proceeds were deposited into Notretoil's bank account.
488 In final submissions JBL did not "concede" that he sold or caused the sale of the Notretoil shares. His submissions record that he denies receiving any direct or indirect benefit from the Notretoil share sale because he held no shares in Notretoil at any time. He submitted that Notrtoil was "always the trustee (since 1975) of the family trust in which I was not the settler, and held no beneficial interest". This aspect of the matter becomes academic by reason of what I have concluded in respect of this claim, referred to below.
489 It is a little fanciful to contemplate that his personal assistant would be off on a folly of her own trading in the shares. Of course that was not suggested directly to Ms Mackey, but I am satisfied that JBL's submissions that he did not cause the sale would mean that Ms Mackey, at least in respect of 500,000 shares, caused the sale on her own volition. Equally it would mean that Ellis was on a folly of his own and that he caused the 400,000 shares to be sold. I do not accept that either Ellis or Ms Mackey acted in this way. In any event, JBL did "concede", to use his expression, in his evidence that he caused the trading of the Notretoil shares (tr. 1242). I am satisfied that the Notretoil shares sale was caused by JBL.
490 For the purposes of s 232(5), the plaintiff must establish that JBL possessed information that he acquired by virtue of his position as a director of CCL. The information relied upon is that the forecast profit figures were, to JBL's knowledge, figures that included amounts that were not true profits and thus such figures overstated the profits of CCL and the Group. I have found that JBL knew that the pre-acquisition fees, the Signature exclusivity fees and the Origin fee were amounts that were not true profits. I am satisfied that he acquired this knowledge by virtue of his position as a director of CCL.
491 To prove a contravention of s 232(5) the plaintiff must also establish that JBL made "improper use" of the information. In this regard the plaintiff's case is that JBL's "improper use" of the information was in selling the shares at a time when the market was not aware of information that the figures that had been announced contained false profits. The impropriety of the use was to sell without informing the market of the true position. The purpose of the sale at this time was to gain an advantage for Notretoil, such advantage being the sale of its CCL shares and options at a price that was unaffected by the information of the false profits being generally available to the market. The circumstances surrounding this transaction with JBL's knowledge that the figures contained false profits lead irresistibly to the conclusion that the transaction involved an improper use of the information.
492 However even if I were willing to consider the making of declarations in the unsatisfactory circumstances that blurred the basis for proof of these allegations, referred to at the commencement of this judgment, I am not satisfied that the plaintiff put to JBL in cross examination the matters necessary to establish that the sale occurred "to gain" the relevant advantage. I accept that the advantage does not have to have been achieved but at the least it should have been put to JBL that the sale was made at that time because if it had occurred when the market knew of the information Notretoil would not have achieved an "advantage" - that is the sale at a higher price than otherwise would have been the case. It is fairly logical that such a position would follow but in civil penalty proceedings, it was necessary to give JBL the opportunity to deal with the allegation directly in his evidence, rather than having him deal with the matter in submissions.
493 I refuse the plaintiff's application for a declaration of s 232(5) in respect of this transaction.
494 For the purposes of s 1002G the plaintiff must establish that JBL possessed information that was not generally available to the market. I am satisfied that JBL possessed information that the figures announced to the market contained figures that were not true profits and that such information was not generally available to the market. Section 1002G(1) requires the plaintiff to prove that if such information were generally available, "a reasonable person" would expect it to have a "material effect" on the price or value of the shares. Further the plaintiff is required to prove that JBL knew, or ought reasonably to have known that the information was not generally available and that if it were, it "might" have a material effect on the price or value of those shares. If that is proved s 1002G(2) prohibited JBL from selling the Notretoil shares. The plaintiff does not have to prove that JBL gained an advantage in this process to prove a contravention of this section.
495 JBL knew that CCL and the Group were in a different financial position from that which had been announced because of the false profit figures. The next question is if the information were generally available, whether a reasonable person would expect it to have a "material effect" on the price or value of the shares. This is an objective test assuming the reasonable person to have some knowledge of the workings of the share market and an expectation that the profits reported or forecast by publicly listed companies would report or announce true rather than false profits. A reasonable person "would be taken to expect information to have a material effect" on the price or value of the shares if the information "would, or would be likely to, influence persons who commonly invest in securities in deciding whether or not" to purchase or sell the shares (s. 1002C).
496 JBL did not suggest that the plaintiff was required to call evidence of what influences persons who commonly invest in securities to buy and or sell shares. Hall did make such a submission and it is convenient to deal with that submission here. Hall submitted that the plaintiff's case must fail in this regard because there is no evidence of the general or specific influences on persons who commonly invest in securities to buy or sell shares.
497 In R v Rivkin [2004] NSWCCA 7 the Court of Criminal Appeal approved the trial judge's summing up to the jury, extracted at par [227], in which the trial judge said:
The test that I have posed- that is the test provided by s 1002C- is an objective test. That means that it focuses, in a hypothetical way, on whether the information, if it became generally available, would influence or be likely to influence not the accused but, persons who commonly invest in securities in deciding whether to buy or sell shares. Nor does it provide that the persons who commonly invest in securities received the Information in the same way or in the same circumstances that the Crown alleges that the accused did. It takes the information on its face and asks the hypothetical question whether, if that information had become generally available a at the relevant day, would it influence or be likely to influence the hypothetical group of persons in deciding whether to buy Qantas shares.
…
Rather, you must assume that the Information became known to persons who commonly invest in securities in a neutral way. The information is for the purposes of this element of the offence, assumed to be generally available, and hence readily observable matter. Nevertheless, you would be entitled to find, although it is entirely a matter for you whether you do so find, that the hypothetical group of investors would be entitled to draw certain inferences from the information and take the further information derived by way of inference or conclusion or deduction into account in assessing bot the contents of the information and its likely degree of reliability.
498 In R v Rivkin the Crown had called evidence on the issues of "materiality" which included the expert opinion of a witness that the information would be likely to influence persons in deciding whether to buy or sell Qantas shares. The Crown also relied upon evidence concerning the price war and the effect it was having on the profitability and share price of Qantas; the fact that, as a matter of commonsense, the prospect of the Impulse business merging with Qantas would be positive news for Qantas investors and the evidence of a witness to similar effect; and the increase in the price of Qantas shares which had coincided with a relevant report in the Australian Financial Review as well as the increase in the price of Qantas shares which had followed a formal announcement on 1 May 2001 (see par [90]). The trial judge dealt with the expert opinion in his summing up in the following way;
If I may return for a moment to the opinions expressed by the experts in relation to this issue. You should take care in examining the factors that they took into account in reaching their opinions. By that I mean that you should discount those opinions to the extent that they may have taken into account matters I have directed that you should not take into account in relation to this element of the offence. Similarly to the extent to which those experts or any of them may not have taken into account matters which I have indicated you may legitimately take into account, you should similarly discount their opinions to that extent in relation to this element. In the end however, the issue on this fourth element is, as I have said repeatedly, essentially a matter for your commonsense and for your judgment.
499 One of the grounds of appeal in R v Rivkin was that the evidence led in the trial was incapable of proving that the information was capable of, or would have been likely to influence persons who commonly invest in securities in deciding whether to subscribe for, sell or purchase shares in Qantas. The appellant relied upon a concession made by the expert in cross-examination that if the information had been generally available he would not have acted either way in relation to Qantas shares, because he would not have been able to make an assessment of the reliability of the information received.
500 The Court of Criminal Appeal found that the submission had no merit for several reasons. The Court found:
170 … First, the jury were not bound to accept the evidence of any expert, since the responsibility to find the facts rested with them.
171 Secondly, (the expert witness') evidence was not the only evidence that dealt with this issue. The other evidence was capable of making out the Crown case, and it was open to the jury to accept the other witnesses in preference to (the expert witness). In these circumstances, in accordance with well-established authority, this argument could not have been made good on a directed verdict application, particularly when taken in conjunction with the other circumstances that were relied upon for proof of the materiality of the information, such as the existence and effect of the price war, and the share price movements.
501 Hall submitted that it a "strange case that calls no expert witness to assist with the effect on the market". I am of the view that it will depend upon the case as to whether such "expert" evidence is led. In this case, as in R v Rivkin there is evidence of the fluctuation in the price of CCL shares (Ex. H) that coincide with the announcements to the market that provides a basis for concluding that persons who commonly invest in securities would be likely to be influenced by such announcements.
502 It seems to me that the test in respect of this matter is based on the premise that a reasonable person assumes that persons who commonly invest in securities rely upon announced or reported profits being true profits and not false and that if there is information that is generally available that profits as announced as true profits contain some false profits then such information "would, or would be likely to" influence those persons.
503 The plaintiff must also establish that JBL knew or ought reasonably to have known that the information was not generally available and that if it were generally available it "might" have a material effect on the price of the shares. There is no doubt that JBL knew that the information was not generally available. JBL had reasonable experience in trading in securities. He would have known or ought reasonably to have known that if reported or announced profits contained false profits the persons considering selling or purchasing shares in such a company might be influenced by such information. I am comfortably satisfied that in his position he ought to have known that if the information had been generally available it might have influenced persons who commonly invest in securities whether or not to subscribe for, buy or sell CCL shares.
504 Having regard to the conclusions I have reached in respect of combining these two claims I am satisfied that it is inappropriate to make a declaration of contravention.
The Blenheim option sale
505 On 18 September 1997 Blenheim sold through Epic Securities 1 million Clifford options for $299,548. The instructions to the broker were given by Ellis at JBL's direction, on 18 September 1997.
506 The plaintiff claims that JBL contravened section 232(5) by the "improper use" of the information. There was no claim under s 1002G because the plaintiff indicated in its written submissions that it accepted that the section did not apply because options were not "securities" for the purpose of the section. Once again, the plaintiff's case must be that JBL's "improper use" was the use of the information to sell the options at a price knowing that it would be at a better price than if the information was available to the market.
507 The same deficiency that exists in respect of the cross examination of JBL in the Notretoil share sale exists in respect of this transaction. Even if I were willing to consider the making of a declaration of contravention but for the blurring of the matters of proof to which reference has been made, this matter would persuade me not to make such a declaration. The plaintiff's case in this regard fails.
The Leisuremark options sale
508 Between 4 September 1997 and 22 September 1997 Leisuremark sold through a stockbroker, Paul Morgan Securities, 655,500 CCL options for a total net price of $216,092. The instructions to the broker to sell the options were given: (a) as to 500,000 options, by Ellis, at JBL's direction, to the broker on 4 September 1997; and (b) as to 155,500 options by JBL directly to the broker or by Ellis or Ms Mackey, at JBL's direction, to the broker between 4 September 1997 and 22 September 1997. The sale proceeds were deposited into Leisuremark's bank account.
509 The plaintiff claims that JBL contravened section 232(5) by the "improper use" of the information. There is no claim under s 1002G because the plaintiff accepted that the section did not apply because options were not "securities" for the purpose of the section. Once again, the plaintiff's case must be that JBL's "improper use" was the use of the information to sell the options at a price knowing that it would be at a better price than if the information was available to the market.
510 As I have said, I am of the view that it is inappropriate to consider the making of declarations in respect of these matters but in any event the same evidentiary deficiency exists in this matter that is present in the earlier transactions. The plaintiff's case in this regard fails.
The Leemac shares and options sale
511 On 24 September 1997, on PL's instructions to the stockbroker, D & D Tolhurst, Leemac sold, or agreed to sell, 1.75 million CCL shares for a net price of $1,028,087 and 1.75 million CCL options for a net price of $354,070, totalling $1,382,157. On 1 October 1997 Leemac banked the proceeds of the sales of $1,382 million and the following day drew a cheque in favour of Notretoil in the amount of $600,000.
512 Immediately prior to the sales, or agreements to sell, Leemac was not the registered holder of the shares and options but was in possession of two unregistered, stamped (with adhesive duty stamps) transfers, each dated 8 July 1996. The first was a transfer of 1.75 million CCL shares from Leisuremark to Leemac, showing the consideration as $385,000, signed by JBL and Ellis for the vendor, Leisuremark, and by PL for the purchaser, Leemac (the Leisuremark/Leemac transfer). The consideration of $385,000 was the market value of the shares at 8 July 1996 (Ex. H).
513 The second transfer was of 1.75 million CCL options from Blenheim to Leemac, showing the consideration $1 and signed by JBL and Ellis for the vendor, Blenheim, and by PL for the purchaser, Leemac (the Blenheim/Leemac transfer).